TDI Reports to Legislature on Credit Scoring Study

January 3, 2005

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

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