Allstate Pays Calif. $3 Million For Credit-Scoring Bias

By Michael Ha

NU Online News Service, March 3, 10:16 a.m.EST?Allstate Corp. said it has agreed to pay $3 million tosettle complaints that the insurer used credit information toimproperly deny auto insurance to racial minorities and poorpeople.[@@]

In a case filed after receiving consumer complaints,California's Department of Insurance alleged that Allstate violatedthe state's 1988 ballot initiative, Proposition 103, by"redlining"- refusing to issue insurance in areas with a highproportion of poor and minority motorists citing poor credithistories.

"We had received a notice of non-compliance issued by theDepartment of Insurance. It was a formal administrative processthat the department follows. Our company and the Department ofInsurance discussed this and tried to work out arrangements. It'snot like a civil action in civil court or criminal court," Allstatespokeswoman Lisa Wanamaker told National Underwriter.

"Settlement involves Allstate paying $3 million to theCalifornia Department of Insurance," Ms. Wanamaker said.

But she noted that despite the settlement, Allstate stillbelieves its actions were permissible under California law."Allstate decided to settle because we did not want to incuradditional costs and engage in lengthy litigation," she said.

California's insurance department cited two Allstatesubsidiaries in its case: Allstate Indemnity Co. and AllstateProperty & Casualty Insurance Co. The regulators claimed thatAllstate violated Proposition 103 between 2001 and 2003, bydeclining at least a thousand prospective customers eligible for"good driver" discounts.

Ms. Wanamaker noted that Proposition 103 prohibits the use ofcredit scores to determine auto rates, or to decline or limitcoverage, for good drivers. "Now, Allstate followed the law?wedidn't use credit information to determine auto rates or to declineor limit coverage to good drivers. Allstate used credit informationto determine the down-payment amount and the payment plan for newauto insurance customers," she said.

Ms. Wanamaker also noted that in California, most of the debatearound credit scoring has been in reference to qualifying customersto homeowners insurance, in contrast to the national debate, whichhas involved both homeowners and auto. "At least here inCalifornia, it's been primarily about homeowners insurance," shesaid.

Allstate is California's fourth-largest auto insurer, commandingmore than nine percent of the market in the state.

The continuing controversy over insurer use of credit scores indetermining rates for customers has intensified recently withpublication of two state reports examining the impact of thatprocess on low-income and minority-population sectors. An 11-statestudy of the issue is in the works.

Both the Maryland Insurance Administration and MissouriInsurance Department have released studies. Maryland said the issueneeded more research. Missouri found that the poor and minoritieswere impacted unfairly by credit scoring. Missouri's governorreacted by urging legislators to enact a credit scoring ban.