AAI Says Texas Credit Scoring Report Supports Industry Claims

March 7, 2003

A report prepared for the Texas Legislature on credit-based insurance scores reportedly supports the Alliance of American Insurers’ (AAI) contention that credit history is a valid tool in predicting future claims in the insurance industry.

The report was paid for by the legislature and prepared by the University of Texas at Austin’s Bureau of Business Research. The full report will be presented to the Senate Business and Commerce Committee at a hearing next week.

According to published reports, the $60,000 study looked at more than 153,000 policies from five companies doing business in the state. The 1998 credit scores for those policyholders were compared with the number of claims subsequently filed by the policyholders. The groups with the worst credit scores all had higher than expected losses – up to 53 percent higher for the worst scores – while those with the best scores had losses 25 percent less than targeted. The dollar amount of the claims was also significantly higher for those with the worst credit scores.

“This is a significant study that should clear up the misperceptions about the use of credit as a valid tool in the insurance business,” Joe Woods, the Alliance’s assistant vice president and Southwest regional manager, remarked. “As we’ve said all along, research shows that people who manage their personal finances responsibly tend to manage other important aspects of their life – and financial assets such as their home and vehicle – responsibly as well.

“We urge the legislature to embrace this information and seriously consider the impact of limiting the use of credit-based insurance scoring. Such limits will have a negative impact on the majority of Texans who have a good score.”

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