PCI To Tell Congress Credit Scores Help Elderly Rates

The Property Casualty Insurers Association of America plans to fight House legislation to eliminate credit scoring as an underwriting criterion, by arguing that the measure would mean higher insurance premiums for the elderly.

PCI's rationale is contained in a working paper obtained by National Underwriter. It is based on a study of credit scoring issued by the Federal Reserve Board last August. PCI's lobbyists plan to use the study to persuade legislators to oppose the bill.

The measure sponsored by Rep. Luis Gutierrez, D-Ill., is known as the Non-Discriminatory Use of Consumer Reports and Consumer Information Act of 2008 (HR 5633). It is being co-sponsored by House Financial Services Committee Chairman Barney Frank, D-Mass., and Rep. Mel Watt., D-N.C., who chairs the Financial Services Subcommittee on Oversight and Investigations.

PCI in its paper argues that based on the Federal Reserve Board study, under the current system seniors benefit when consumers with low credit scores pay higher premiums and consumers with high credit scores pay lower premiums.

"If not, seniors suffer," the PCI paper says. "The Federal Reserve report demonstrates that older individuals, as a group, tend to have higher credit scores, and that credit-based insurance scores are effective risk predictors," the report says.

"The use of credit scores currently benefits seniors--and most insurance buyers--by helping insurers charge premiums based on risk," the paper argues.

Most insurance consumers, including seniors, benefit from insurers' use of credit scoring, the PCI paper adds.

The paper says a study by the Arkansas Insurance Department last July demonstrated that consideration of credit scores either lowered, or did not affect premiums for 90.2 percent of auto insurance consumers and 90.8 percent of homeowners' insurance consumers.

"Credit scoring lowered auto insurance rates for more than three times as many consumers than those who saw an increase," the paper contends.

According to Rep. Gutierrez, his bill would prevent the use of credit information where there is a government finding of discrimination based on that use, or if the credit information serves as a proxy for race or ethnicity.

Rep. Gutierrez said the Federal Trade Commission has reported that all major automobile carriers make use of credit information in one way or another. An FTC report issued in July of last year found that credit-based insurance scores can be an effective predictor of risk. It found minorities tend to have lower credit-based scores and often end up paying more for their coverage.