Insurers Quizzed In Fla. Over Credit Scoring Impact

Florida regulators grilled insurance representatives today over what they were doing to keep their use of consumer credit scores from negatively impacting minority and low income groups.

The questioning came during a Florida Office of Insurance Regulation (OIR) hearing at which company representatives emphasized that insurance scoring is just one factor they use to evaluate risks.

Consumer advocates, meanwhile, questioned the reliability of such information.

The OIR held the public hearing on insurers' use of credit scoring to obtain information on how insurers use this information in determining auto insurance rates in Florida. The OIR subpoenaed five insurance companies--Allstate, GEICO, Nationwide, Progressive and State Farm.

A panel of regulators questioned insurance company executives on how they applied credit information and whether the practice may discriminate against low income and minority groups.

Regulators repeatedly mentioned a Federal Trade Commission report conclusion noting that African-Americans and certain Hispanics are substantially overrepresented in the lower tier of insurance scores and underrepresented in the upper echelon. They asked insurers if they have taken any actions to mitigate the impact of credit information on these groups.

But insurers, including GEICO representatives, said implying that credit scores are inherently racial because of that FTC finding is misguided.

They noted that other rating factors are not equally distributed among racial groups either. They also said that within minority groups, credit information was still predictive of future losses according to the FTC report.

Regulators also questioned what the impact on rates would be if the use of credit scoring was banned in Florida.

A representative from Allstate said some Florida drivers could see increases of as much as 30 percent, while other drivers could see decreases.

But Birny Birnbaum, executive director of the Center for Economic Justice, criticized insurers' use of credit information because he said it is not objective or reasonable. He also said some factors that go into credit scores penalize responsible individuals.

For example, he noted that consumers have been advised not to cancel old credit cards they do not use if they want to improve their credit score.

Additionally, he said consumers have been told by news outlets reporting on consumer issues that if they have a delinquent account that's old, they should not pay it off before seeking credit, because the delinquency then becomes current.

Asked if states that have banned the use of credit scoring have seen rates rise and competition fall, Mr. Birnbaum said states like Hawaii and California have not allowed the use of credit information for many years, so it is difficult to do a before and after comparison.

But he stated the absence of using credit information has not prevented competition in those states.

The use of credit information has also received attention in Connecticut, where the legislature's Insurance and Real Estate Committee yesterday held a hearing on a bill that would prohibit insurers from using credit-based insurance scores in the underwriting and rating of auto insurance.