|
The Texas Department of
Insurance announced it has completed a "Report to the 79th Legislature -
Use of Credit Information by Insurers," which details a recently
conducted a legislatively mandated study on the use of credit scoring.
TDI said the study is significant, in that it analyzed policyholder data
at the individual level to determine whether credit scores are an
effective predictor of risk, and to examine the impact of its use on
different classes of consumers.
According to the department, preliminary findings indicate a strong
relationship between credit scores and claims experience. Poor credit
scores are associated with increased claims activity. Furthermore, the
study found that Black, Hispanic, young, and low-to-moderate income
policyholders tend to have worse credit scores than White, Asian, older
and high-income policyholders.
Further analysis is being conducted to isolate the effects of multiple
variables, in order to determine whether credit scoring provides
additional predictive capabilities beyond those of traditional rating
variables. Results will be available at the end of January 2005.
TDI's study is groundbreaking in the quantity and quality of data
analysis undertaken to better understand the practice of credit scoring.
The study was mandated by the Texas Legislature in 2003, at the same
time that an array of consumer protection measures were enacted to
regulate its use.
The regulatory agency said the data in the study surpasses data used in
many other published studies; it includes race and ethnicity information
at the individual level rather than at the aggregate level used in
previous studies (e.g., zip codes, census tract data). In all, the study
looked at data for 2,000,000 policyholders, and included six auto credit
scoring models and three homeowners credit scoring models. The study
methods, findings and conclusion were peer reviewed by two leading
universities and the Texas Office of Public Insurance Counsel.
TDI's report is available on the department's Web site at
http://www.tdi.state.tx.us/.
(Report may also be
downloaded by clicking
here.) |