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January 11, 2005, Insurance
Journal
On Jan. 10, 2004, Texas State Senators Rodney Ellis
of Houston, Gonzalo Barrientos of Austin and Eliot Shapleigh of El Paso
announced their intent to file a bill in the legislative session that
began Jan. 11 that would ban the use of credit history by insurance
companies in setting rates.
In announcing the bill, the senators expressed concern over the results
of a study conducted by a consumer interest group, the Austin-based
Center for Economic Justice. Sen. Ellis said the CEJ report showed the
use of credit scores by insurers leads to disproportionately higher
premiums for minority and middle class Texans.
The Texas Department of Insurance earlier this month released the first
results of a credit score study it commissioned. That study indicates a
relationship between claims history and credit scores, but TDI said it
also shows that certain minority groups and lower income consumers tend
to have worse credit scores.
Insurance industry representatives quickly responded to the senators'
announcement.
Property Casualty Insurers Association of America (PCI) called on
legislators to proceed with caution in regards to the proposed
credit-based insurance scoring bill.
Calling the rhetoric of the news conference to announce the bill
"inflammatory and divisive," Donald Hanson, southwest regional manager
and counsel for PCI, said the senators' actions were "counter productive
especially when it is based upon nothing more than preliminary
information.
"Studies that are related to the connection between race, income and
credit are extremely complex," Hanson continued. "We need to wait until
this study is complete to ensure that is accurate. This is especially
true because several states such as Alaska, Missouri and Washington that
attempted to conduct studies on race and income have suffered from
critical flaws in the methodology and failed to adequately consider loss
histories, which rendered the results invalid. We would not want to base
public policy on faulty or inconclusive data."
Insurers use credit scores in order to charge more accurate rates,
stated Mark Hanna, a spokesperson for the Insurance Council of Texas.
Hanna added, "TDI's study confirms that people with bad credit scores
are twice as likely to have an accident than drivers with good credit
scores. The study also confirms that there are excellent, average and
poor credit scores in every ethnicity." He noted that "minority/ethnic
or socioeconomic" status does not come into play because "insurers do
not consider this information in the underwriting process."
In an announcement, Sandra Ray, public affairs director for the
Southwester Insurance Information Service, stated her organization
respects "the opinions of the coalition members, but would like to offer
some facts based upon concrete and exhaustive research, which indicate
that the use of credit is a valid predictor of loss for people from all
economic and social levels of Texas society."
Ray noted that TDI's "study confirmed that there is a strong
relationship between credit scores and claims experience. Insurers are
trying to ensure that all policyholders who pose less risk be given the
benefit of paying lower insurance premiums because of their good credit
score."
She offered the following statistics as evidence that "insurance is
clearly available and affordable, including to millions of Americans of
modest means and all ethnic groups:
· Homeownership rates in Texas reached a record high 64.5 percent in
2003 (latest data available).
· Homeownership in the Dallas metropolitan area also reached a record
high 63.1 percent in 2003.
· Minorities are using their good credit to buy homes and get insurance.
· In fact, homeownership rates for minorities are at or near record
highs and have increased much faster for minority groups than for whites
· Between 1995-2001 Hispanic American homeownership has increased 45.9
percent.
· African American homeownership has increased 23.2 percent.
· Homeownership by White Americans has increased only 10.7 percent.
Ray added that, "restricting the use of credit histories actually has
the effect of requiring financially prudent policyholders, many of whom
are in low-income households, to subsidize more affluent people who may
pose greater risks." |