WASHINGTON–One of the five Federal Trade Commission members has filed a dissent from the agency's study of insurance industry credit scoring use, which concluded it is an “effective predictor” of risk for rating auto insurance customers.

Commissioner Pamela Jones Harbour disagreed with the methodology used in generating the report and voiced doubt over the “reliability of any conclusions the report might draw.”

Another member of the Commission had other concerns, saying that while he thought the report “makes a substantial contribution to public discussions in this area,” the results “are, of course, no cause for celebration.”

The dissent, and the concurring statement of Commissioner Jon Leibowitz, prompted Commission Chairman Deborah Platt Majoras, and the two other supporting commissioners, to issue a statement defending the report.

“While we respect the dissent's views as to the data and methodology used here, we have confidence in the quality of the process that the Commission staff used and the soundness of the results obtained,” the report's three supporters said.

The apparent lack of unanimity amongst the commissioners is likely to enliven a hearing on the issue scheduled for tomorrow by the Oversight and Investigations Subcommittee of the House Financial Services Committee.

Witnesses expected at the hearing include: Robert Hartwig, president of the Insurance Information Institute; Florida Insurance Commissioner Kevin McCarty; Eric Rodriguez, Policy Analysis Center director for La Raza Hispanic advocacy organization and Birny Birnbaum for The Center for Economic Justice consumer group.

A consortium of consumer groups has already asked Congress to reject the study and order the agency to conduct “an objective, independent study.”

“The relationship between insurance credit scores and race is so strong that even though the FTC used data handpicked by the industry, it found that credit scoring discriminates against low-income and minority consumers and that insurance scoring was a proxy for race,” they said, calling for a ban on credit scoring use.

The report said African-Americans and Hispanics are substantially overrepresented among consumers with the lowest scores–the scores associated with the highest predicted risk–”and substantially underrepresented among those with the highest scores.”

In her dissent, Ms. Harbour charged that the “data collection and analysis fell short of the FTC's gold standard for rigor and completeness, and did not reflect the agency's best practices.” She added that “better alternatives were available and should have been utilized.”

Ms. Harbour argued, “Had this report been based on the real insurance marketplace–using actual, verifiable data on individual policyholders, from a broad cross-section of insurance companies–reliable answers might have emerged.”

She said she couldn't endorse the report “due to my grave methodological concerns. This study fell short of the rigorous research and data-collection standards to which the Commission usually adheres.”

The report, released Monday by the commission, says credit scores are an “effective predictor” of risk under automobile insurance policies.

It adds that the use of credit-based insurance scores “may result in benefits for consumers.” For example, the report says scores permit insurance companies to evaluate risk with greater accuracy, “which may make them more willing to offer insurance to higher-risk consumers for whom they would otherwise not be able to determine an appropriate premium.”

Insurance groups that have fought battles in legislatures across the country to preserve their right to use credit scoring have hailed the report as validation of a necessary industry process.

Special Reports /

An FTC Member Rejects Its Credit Scoring Report

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