Could instability in the Middle East and other market factorsfueling the rise in gasoline prices reignite the state-by-statedebate over the use of credit scores to help carriers establishauto insurance premiums?

Some industry observers fear that might turn out to be the case,with the cost of auto insurance–and the factors used to setprices–likely to become a more politically sensitive issue forfamilies already coping with soaring gas prices cramping theirfamily budgets.

Thus, any hike in auto premiums attributed to underwritingdriven by credit scores could draw consumer ire, and put pressureon politicians to challenge insurers on the already controversialpractice, some industry analysts and consumer advocatesbelieve.

“Insurers are easy targets,” said Craig Weber, senior analyst atCelent, a consulting firm. “When people get squeezed, they look forthe easy target to push back against.”

Mr. Weber also believes carriers are particularly attractivetargets right now because of the industry's recent high profitlevels. “Profitability in the insurance industry overall has beentoo high for consumer comfort, as it is for regulators,” he said.“Regulators are wondering why insurers have such greatprofits.”

Although Mr. Weber believes insurance industry profits arecyclical and are bound to fall, he said the current high levelcould add to political pressure seeking to ban the use of creditscores.

Similarly, some consumer advocates also believe the higher costof essentials–such as mortgage rates and gas prices–will createmore anti-insurance scoring pressure.

“Low-income people are being squeezed, and they're the ones whosuffer as a result of the use of credit scores,” said J. RobertHunter, director of insurance at the Consumer Federation ofAmerica.

“The pressure will not cease and will build,” he said, addingthat “there's no logical explanation” for the use of creditscores–although a new report by the Federal Trade Commissionconfirmed the practice's utility, as well as its disparateimpact.

Low-income people “are very vulnerable,” said Mr. Hunter,explaining that their credit scores go down mainly because they getsick and have little or no health insurance, they lose a job, orare victims of a disaster–such as Hurricane Katrina.

Even without the added pressure created by soaring fuel prices,opposition to the use of credit scores remains strong and periodicbattles emerge.

Why do insurers keep using credit scores when it draws so muchconsumer ire and bad publicity? The clear answer is that most inthe industry still find the tool quite useful in predicting riskand setting premiums.

Indeed, there is wide agreement among insurers that elements inan individual's credit score provide excellent indications of howthat person behaves in broader areas–an individual who pays allbills on time and never misses a payment is unlikely to take bigchances while driving a car, for example, insurers believe.

“Statistically, people who are very cautious financially areunlikely to be people who get in their car and drive 90miles-per-hour down a residential street,” according to Robert P.Hartwig, president of the Insurance Information Institute.

“The use of credit information is one of the most powerfulpredictors of loss the insurance industry has come across indecades,” he added. “The statistical correlation is there, andthat's what matters.”

To make use of this tool, insurers buy data from one of thenational credit bureaus and run it through a formula developedin-house or by a third party to determine the applicant's“insurance score,” which helps indicate how much that individualshould pay in premiums.

Some companies depend heavily on insurance scores, while othersmix it with many additional factors. Some carriers don't useinsurance scoring at all.

However, consumer advocates argue that the insurance scoringsystem exposes drivers to arbitrary factors not linked to theiractual exposure. For example, what about an insured with a perfectdriving record, but someone in the family suddenly contracts aserious and expensive disease, and the insured falls behind oncredit card payments? That could cause a credit score to plummetand the insured's insurance premiums to soar. Is that individualany less responsible in driving a car than a few monthsearlier?

Critics argue that at the very least, insurers should not beallowed to base rates or provide coverage merely on the basis of acredit score, and insist that an individual should know to whatdegree their credit score affects the insurance premium.

Individuals also should be able to determine the accuracy ofcredit reports used by insurers, and should be able to appealdecisions insurers make based on credit history, consumer advocatescontend.

There has been progress in addressing such concerns. TheNational Conference of Insurance Legislators has drawn up a modelbill that answers many of the critics' complaints. The model bill,or versions of it, has been adopted in about two dozen states.

However, the industry argues that the model bill couldsignificantly increase the cost of underwriting. Carriers wouldhave to give information to each customer whose credit score wasused even in small part to determine a premium, as well as giveeach such customer an opportunity to appeal.

One of the most controversial issues is whether credit scoringis being used to discriminate against members of minority groups orthe poor.

Last year, U.S. District Judge Fred Biery approved aclass-action settlement between Allstate Insurance Company and agroup of African-Americans and Hispanics who said Allstate had beencharging them higher premiums than for other customers because ofthe use of credit scores, rather than the actual exposures theypose.

The settlement included some significant concessions onAllstate's part. The carrier agreed to pay almost $12 million(mainly to cover attorneys' fees), establish a new algorithm in itsuse of credit scores and make the algorithm publicly available.

Allstate also agreed to adopt an appeals program under which allcustomers who experience extraordinary events that impact theircredit information could potentially obtain premium reductions.

In the Allstate case, Judge Biery specifically said he found noevidence that Allstate knowingly had engaged in discrimination.(Allstate did not return phone calls for comment.)

Given the persistent opposition posed by consumers and theiradvocates, some insurers think the days of insurance scoring arecoming to an end.

Although State Auto Insurance considers insurance scoring one ofthe most predictive indicators of subsequent loss patterns, arepresentative for the Columbus, Ohio-based carrier, TerrenceBosshier, said his company has been cutting back on its use.

“We've used it as one of many variables in our ratings,” notedMr. Bosshier. “Having said that, while we think it's a valid,statistically proven metric, we also think if it were to beoutlawed in some states, we could price our products adequatelywithout credit scoring.”

However, he added, while his carrier is preparing for lifewithout this underwriting and rating tool, “we definitely thinkinsurance scoring should be allowed to be used as one of manyvariables in the pricing of insurance products.”

Mr. Bosshier said he would “have some concerns” aboutlegislation that totally does away with the use of credit scores,adding that elements in some bills restricting the way insurersemploy this tool could increase the cost of underwriting. “Muchdepends on how far the measures would go,” he said.

“We've altered our algorithms in the last couple of years toreduce the impact of insurance scoring on our products,” accordingto Mr. Bosshier. “We have attempted through other pricing metrics,other criteria, to add more variables, multivariant-type pricingpoints–an interplay between different criteria on a policy–tominimize the impact of credit or insurance scoring on theproducts.”

He describes the process as an “ongoing evolution,” adding thatif credit scoring were totally outlawed in a particular state, “itwould have a smaller impact on State Auto than it would have, say,five years ago.”

State Auto has been employing insurance scoring for about 10years, but uses it only for new customers–for “an unknown quantitywho comes into an agent's office for the first time. We don't useit for existing customers.”

“The horror stories you hear where the little old lady had aninsurance policy for 20 years and a company credit scores her andtriples her premium or cancels her policy–that wouldn't occur atState Auto,” according to Mr. Bosshier.