Insurer Orgs Snarl At Mo. Credit Score Attack

By Daniel Hays

NU Online News Service, Jan. 30, 4:24 p.m. EST?A bid by Missouri's governor to ban credit record use for insurance rating will hurt consumers and is based on a "fatally flawed study," two insurer organizations said today.[@@]

The reaction, from the American Insurance Association and the Property Casualty Insurers Association, followed an announcement Thursday by Gov. Bob Holden that he was asking for a total ban on credit scoring use for underwriting and rating, based on a Missouri Insurance Department study.

According to the department's research, urban and rural state residents suffer because in the lowest income areas--often in inner cities and the southern portion of the state--the average credit scores were 12.8 points lower than the wealthiest ZIP code areas.

Low credit scores for minority area ZIP codes hold true even if the individual residents have the same income level, marital status, unemployment status, or education level as residents in predominantly white neighborhoods, according to the department.

Representatives of AIA and PCI both noted that federal law permits credit scoring, and the AIA cited a 2002 American Academy of Actuaries finding that credit scoring was effective tool.

PCI said the Missouri report was fatally flawed in methodology. Diana Lee, PCI assistant vice president-research in Des Plaines, Ill., said the study only examined insurance score data aggregated at a ZIP code level and did not take into account policyholders' loss experience.

"Insurers do not collect information on race, ethnicity or income. They only compile data on risk factors and they apply these factors equally to every consumer."

She added that other studies conducted by EPIC actuaries and the University of Texas "show that insurance scores are a powerful predictor of risk across all states, regardless of whether they have high or low minority populations and whether they have high or low median household income."

AIA in Washington, D.C. noted that, last year, a Missouri law took effect that outlawed the use of credit scoring as the sole factor in underwriting and said the law should be allowed to work before a new one was considered.

PCI said that in passing that law legislators had rejected a full-scale ban.

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Insurer Orgs Snarl At Mo. Credit Score Attack

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