Insurance Rates and credit

By Elizabeth Pierson

The Brownsville Herald



AUSTIN, February 22, 2005 — Using credit scores to determine insurance rates is discriminatory and unfairly hurts minorities and low-income people, according to testimony in front of a House committee on Monday.



Insurance industry representatives disagreed, telling the House Committee on Insurance that credit scores accurately predict behavior, and doing away with the practice will raise rates for good drivers.



Many insurance and homeowner insurance carriers use credit history as one factor in determining rates.



House Bill 23 by Rep. Fred Brown, R-Bryan, would ban the practice.



“If this body embraces credit scoring … you will be approving a practice that is known to have a discriminatory effect,” said Ware Wendell, policy director for Texas Watch, speaking in support of the bill.



Credit scores are closely aligned with race, he said. Among those with the best credit scores in Texas, 90 percent are white, 2 percent are African American and 5 percent are Latino, Wendell said.



Gender, marital status, and age are more useful in predicting whether someone will file an insurance claim than is credit, he said.



But doing away with credit scores would hurt minority communities where insurance agents were scarce before they could use credit scores, said Charles Duckworth, an insurance agent in Houston.



“It seems like the whole thing about the scoring is like arguing with your bathroom scale,” Duckworth said. “If it’s accurate, you really don’t have much to argue with.”



And ridding insurance companies of the tool would cause many good drivers to pay more to compensate for bad drivers, said Jonathan Klein, president of Progressive Mutual County in Texas, the state’s fourth-largest auto insurer.



Klein cited a Texas Department of Insurance study that showed there was a correlation between credit scores and claims filed. The company uses the information responsibly and as just one of 15 factors in determining rates, he said.



Customers with good credit would pay $200 more a year for auto insurance, on average, if credit scoring were not used.



“It’s a proven, irrefutable fact, confirmed by the TDI, that individuals with better credit scores have fewer accidents,” he said.



Conversely, having bad credit doesn’t always mean they have more accidents, some testified.



One woman said she has auto insurance rates as high as those of a drunk driver even though her driving record is clean. A 1999 failed business deal left her and her husband starting from scratch with new careers, and they still pay elevated rates, because of the ordeal, she said.



Another man had to file bankruptcy after medical bills from his wife’s brain tumor piled up. Some late bills hurt their credit and nearly tripled their home insurance premium, he said.



In presenting the bill to the committee, Brown said he is concerned that the practice of using credit scores targets elderly people who tell him they have what is called a “thin file,” or little credit, not necessarily bad credit.



And high rates prevent some people from buying insurance, which means even those with good credit pay higher premiums when they are in an accident with an uninsured person, Brown said.



State Rep. Aaron Peña, D-Edinburg, said he is coauthoring the bill because he is concerned about the close correlation between credit scores and Hispanics and low income people.



“When a hurricane passes through the Valley as it does every so often, those hurricanes don’t make any distinction between those people with good credit scores and those without good credit scores,” he said.



In 2003, the House voted unanimously to ban the use of credit scoring. What eventually became law is known as Senate Bill 14, which allowed the practice but gave consumers some help in appealing the increases when their credit is damaged from catastrophic life events.