PCI: TDI Study Finds Use of Credit is Fair and Accurate

February 1, 2005

The Texas Department of Insurance (TDI) has delivered to the state legislature its final phase of its report on insurers’ use of credit information. According to the Property Casualty Insurers Association of America (PCI), the report’s main finding was that credit information significantly improves pricing accuracy when combined with other rating variables in predicting risk. In addition the report found that credit-based insurance scoring is a fair and justified tool that adds value to the insurance transaction.

PCI welcomed the findings as further proof that consumers are benefiting from the use of insurance scores.

PCI President and Chief Executive Officer Ernst Csiszar released the following statement regarding the TDI study:

“The report of insurers’ use of credit information conducted by the Texas Department of Insurance (TDI) reaffirmed the strong connection between credit-based insurance scores and risk of loss. It answered any question about the value, accuracy and fairness regarding insurers’ use of credit information for underwriting and rating insurance policies. With these findings, legislators should be very comfortable with the state’s current law on insurance scoring.

“Insurance scores when used along with other familiar factors such as driving record and the age of a home or type of vehicle, help provide a clearer picture of an individual’s risk of loss. This helps insurers personalize the insurance coverage by more accurately pricing the policies based on the individual policyholder’s potential for filing a claim.

“The bottom line is that insurance scoring helps to lower insurance premiums for most consumers, which makes insurance coverage more available and affordable.

“Lawmakers and the public can rest assured that the claims of racial discrimination have now been proven to be false. For insurers, the issue has always been one of risk, not race. Insurance scoring is a color-blind, objective process. Only credit-related information proven to have a connection with insurance losses is used to determine a score.

“Texas legislators enacted sound legislation in 2003 that regulates insurers’ use of credit information and provides important consumer protections. The current law permits the use of insurance scores, however insurers must provide exceptions for consumers facing extraordinary life circumstances such as divorce, death of a spouse, medical catastrophe, temporary loss of employment or identity theft that can damage an individual’s credit history. Insurers will also reconsider a score when there is an error found on a credit report. This law places Texas in the mainstream regarding how other states regulate insurers’ use of credit information and ensures all consumers pay premiums that match their risk factors.

“Based on the report’s finding that banning or placing artificial rate limits on credit scoring would disrupt a marketplace that has just stabilized and raise premiums for a very large number of policyholders, lawmakers should reject legislation to change the current law.”

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