Texas House Insurance Committee Hears Testimony on Insurance Scoring

The National Association of Independent Insurers (NAII) was among those who testified at a recent hearing held by the Texas House Insurance Committee on the use of credit histories in rating insurance. Other insurer groups testifying before the committee included the Texas Coalition for Affordable Insurance and the Insurance Information Institute.

The NAII stated that its testimony highlighted the consumer benefits of credit-based insurance scoring, as well as the strong link between credit information and the likelihood of filing a claim. In addition, NAII informed the Committee about laws other states have recently enacted to address this issue.

NAII is asking the Texas legislature to give careful consideration to this issue before enacting any restrictions on insurers’ ability to use insurance scores. Insurance scores are a highly accurate tool to assist insurers in making fair and objective underwriting and rating decisions. Restrictions on the use of this tool could harm many consumers.

“Insurers should have the option of using credit information that will help them make fair and objective decisions about whom to insure and at what rate. Credit information helps insurance companies determine a fair premium for each consumer that is related to their potential for filing a claim. The process can also help make insurance more affordable,” said Donald Hanson, NAII Southwestern Regional Manager. “A key fact to keep in mind is that most consumers have good credit and stand to benefit from the use of insurance scoring. Some insurance companies report that insurance scoring results in lower premiums for more than 70 percent of their customers. If insurance scoring could no longer be used, then many policyholders would have to pay higher premiums.”

The NAII said this year, 29 state legislatures considered restrictions or bans on the use of credit information. Of those 29 states, only nine states passed legislation restricting some aspect of insurance scoring. No state adopted a complete ban of the practice.

Not everyone testified in favor of credit scoring. According to the Austin American-Statesman, at least one consumer shared her story about how the insurance premium on her 1993 Honda Civic Premium increased by 600 percent last year, rising from $437 to $3,000. The increase occurred despite the fact that she drives less than 1,000 miles to work each year to her job six blocks from her home, has never had a ticket and her only automobile accident happened 25 years ago. The consumer indicated that her credit history was damaged five years ago when she got behind on her bills after her daughter was murdered. Even though she eventually straightened out the problems with past-due bills, she believes that the smear on her credit history caused her premiums to skyrocket.

Lawmakers expressed skepticism about credit scoring practices as well. Rep. Dora Olivo, D-Rosenberg, said she’s received lots of calls from constituents on the issue and believes something is wrong. State Sen. Leticia Van de Putte, D-San Antonio, said she’s not convinced that credit scoring helps in assessing risk. Van de Putte plans to sponsor a bill banning the use of credit scores by insurance companies in the upcoming session.

Insurance Commissioner Jose Montemayor also indicated that he doesn’t believe credit scores are as accurate in predicting insurance losses as insurer groups would have him believe. He said the only studies showing the link between credit histories and claims behavior have been done by insurance companies. Montemayor added that although the Texas Department of Insurance is examining the practice, it lacks the resources to do a comprehensive study.

Topics Carriers Texas