Key Reports and Studies
Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, A Report to Congress by the Federal Trade Commission. This study found that insurance credit scores are effective predictors of risk. It also showed that African-Americans and Hispanics are substantially overrepresented in the lowest credit scores, and substantially underrepresented in the highest, while Caucasians and Asians are more evenly spread across the scores. The credit scores were also found to predict risk within each of the ethnic groups, leading the Federal Trade Commission (FTC) to conclude that the scoring models are not solely proxies for redlining. The FTC stated that little data was available to evaluate benefit of insurance scores to consumers. The report was disputed by representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice, for relying on data provided by the insurance industry, which was not open to examination.
The Impact of Personal Credit History on Loss Performance in Personal Lines, by James Monaghan ACAS MAAA. This actuarial study matched 170,000 policy records with credit report information to show the correlation between historical loss ratios and various credit report elements.
The Use of Credit History for Personal Lines of Insurance: Report to the National Association of Insurance Commissioners, American Academy of Actuaries Risk Classification Subcommittee of the Property/Casualty Products, Pricing and Market Committee.
Insurers' Use of Credit Scoring for Homeowners Insurance in Ohio: A Report to the Ohio Civil Rights Commission, from Birny Birnbaum, Center for Economic Justice. Birny Birnbaum, Consulting Economist, argues that insurance credit scoring is inherently unfair to consumers and violates basic risk classification principles.
Insurance Credit Scoring: An Unfair Practice, Center for Economic Justice. This report argues that insurance scoring: is inherently unfair; has a disproportionate impact on consumers in poor and minority communities; penalizes consumers for rational behavior and sound financial management practices; penalizes consumers for lenders’ business decisions unrelated to payment history; is an arbitrary practice; and undermines the basic insurance mechanism and public policy goals for insurance.
The Use of Credit Scoring in Automobile and Homeowners Insurance, A Report to the Governor, the Legislature and the People of Michigan, by Frank M. Fitzgerald, Commissioner, Office of Financial and Insurance Services. This report reviewed the viewpoints of the industry, agents, consumers, and other interested parties. In conclusion, insurance credit scoring was found to be within the scope of Michigan law.
Use of Credit Information by Insurers in Texas, Report to the 79th Legislature, Texas Department of Insurance. This study found a consistent pattern of differences in credit scores among different racial/ethnic groups. Whites and Asians were found to have better scores than Blacks and Hispanics. Differences in income levels were not as pronounced as for racial/ethnic groups, but average credit scores at upper income levels were better than those at lower and moderate income levels. The study found a strong relationship between credit scores and claims experience on an aggregate basis. In 2002, the Texas Department of Insurance received a peak of 600 complaints related to credit scoring, which declined and leveled to 300 per year.
Insurance Credit Scoring in Alaska, State of Alaska, Department of Community and Economic Development, Division of Insurance. The study suggested unequal effects on consumers of varying income and ethnic backgrounds. Specifically, the higher income neighborhoods and those with a higher proportion of Caucasians were the least impacted by credit scoring. Although data available for the study was limited, the state of Alaska determined that some restrictions on credit scoring would be appropriate to protect the public.
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