Nine carriers that control 60 percent of the U.S. homeownersinsurance market have agreed to comply with a Federal TradeCommission subpoena requesting additional information on how creditscoring data is used to set premium rates.

The carriers that will supply the data by April 24 are Allstate,American Family Mutual, Chubb, Fire Insurance Exchange, LibertyMutual, Nationwide Mutual, State Farm, Travelers and the UnitedServices Automobile Association.

In a statement, Allstate said it would comply with the subpoena,adding that it supported the FTC's "efforts to analyze the effectsof credit-based insurance scoring on consumers." Mike Siemienas, anAllstate representative, said: "We intend to work with the FTC toassemble the needed data as efficiently as possible."

The decision to ask for the data was not a surprise. The agencyin May asked for comment on a draft model order it could use informulating its request for data in a fashion that wouldn't burdenthe insurers.

Mr. Siemienas said the subpoenas reflect the comments receivedon how best to proceed. He said that besides filing comments,Allstate and others in the industry have had discussions with FTCstaff to work through the technical issues with the draft datacall, as well as ways to potentially improve it for the benefit ofthe FTC and all parties.

"As we analyze the FTC's data call, protecting our customers'privacy will remain a top priority," he said.

The FTC and the Federal Reserve Board both issued studies in2007 under a mandate from a 2003 law, which concluded that use ofcredit scores is an "effective predictor" of risk under autoinsurance policies. Indeed, the report said use of credit-basedinsurance scores "may result in benefits for consumers."

But consumer groups contested the conclusions, and members ofthe House Financial Services Committee implored the FTC to takeanother look.

One of the concerns voiced was the report's finding thatcredit-based insurance scores are distributed differently amongracial and ethnic groups, and this difference is likely to have aneffect on the insurance premiums that these groups pay, onaverage.

Specifically, the report said, non-Hispanic whites and Asiansare distributed relatively evenly over the range of scores.

However, African-Americans and Hispanic non-whites aresubstantially overrepresented among consumers with the lowestscores--those associated with the highest predicted risk--whichcould have a disparate impact on their insurance rates.

J. Robert Hunter, insurance director for the Consumer Federationof America, said he supported the FTC's request for moreinformation. "As a matter of policy, CFA supports banning thepractice, because we think the [credit score] data as useddiscriminates against low-income and minority populations," hesaid.

But at the very least, he added, "it should be analyzed byobjective means to determine the effects of credit scoring onvulnerable populations within the markets."

Mr. Hunter maintained that the earlier study was based on datacollected by the industry in a way that was not objective.

In this new study, the agency will analyze the raw data itself."It will not have been massaged by the industry on the way to theFTC," he said.

The American Insurance Association was critical of the datarequest, saying the group is "disappointed the FTC chose thisroute, despite the industry's good-faith efforts to workcooperatively to find a sensible, secure and cost-effectivealternative to provide the data the FTC says it needs to conductits study."

AIA's vice president and assistant general counsel, DavidSnyder, said "the use of a compulsory process does not allay ourserious concerns about the handling and protection of massiveamounts of consumer data."

In July 2007, the FTC released its study of auto insurance andcredit-based insurance scores--completed without subpoenainginformation from insurers--which further confirmed the efficacy,objectivity, consumer benefits and risk-based value of such scores,according to the AIA.

Mr. Snyder said the "use of credit-based insurance scoresbenefits a vast majority of consumers, and is one of the tools thatenable insurers to provide sound pricing models. We're confidentthe FTC, just as they found in their auto study, will learn thesame thing in this latest examination."

He said consumers should be very concerned that the FTC hasordered companies to hand over such a vast amount of data,including items such as a policyholder's Social Security number andmortgage information, "with few assurances as to how that data willbe analyzed, handled, stored and used."

The AIA, Mr. Snyder added, "will be watching this process as itplays out, to do our best to ensure that company and consumerinterests are protected."

Jimi Grande, vice president of federal and political affairs forthe National Association of Mutual Insurance Companies, also voiceddisappointment over the FTC decision to use a compulsory process,instead of the voluntary method employed in preparing priorstudies.

Mr. Grande said he doesn't expect the findings as a result ofthe use of compulsory data to be different than the findings ofearlier studies. "No matter how many studies are conducted on theuse of credit-based insurance scoring, the results are consistent,"he noted, adding that "study after study after study has clearlyindicated that allowing insurers to use the full gamut of effectiveand accurate underwriting tools--such as credit-based insurancescoring--results in pricing that better reflects the risk and leadsto discounts for the majority of insurance consumers."

Mr. Grande pointed out that the FTC, Federal Reserve Board andmany state insurance departments have conducted studies about thepotential of discrimination in insurance rates through the use ofcredit scoring, and "all conclude that credit-based insurancescoring benefits consumers and is not unfairly discriminatory."

"Conducting the same studies over and over trying to get theresult you want seems to be an exercise in futility," he said. "Theevidence is clear that more accurate underwriting benefitsconsumers."

Representatives for the Property Casualty Insurers of Americaalso argued that doing away with the use of credit scoring would doconsumers more harm than good.

"Credit information is more likely to help consumers pay lessfor their insurance," said Ben McKay, PCI's senior vice presidentof federal affairs. "Insurers consider credit information in theirunderwriting and pricing decisions for only one reason--to rate andprice business with a greater degree of accuracy andcertainty."

He said information provided to the FTC will show that "insurersuse credit as a nondiscriminatory tool to accurately predict therisk of loss," adding that "as in the past, this study will showthe predictive power of credit-based insurance scores."