Let’s Keep Insurance Affordable and Available!
Protect Your Insurance Discounts!

December 19, 2003, Statement from TCAIS Director Beaman Floyd

As explained in the last edition of the TCAIS Insider, credit-based insurance scoring is still very much in the news. As you may recall, two recent studies proved the significant relationship between insurance scores and loss claims. That is, people with positive credit information are less likely to incur losses. Scoring helps insurers assess risk to more accurately set rates and provide discounts for the people who pose a lower insurance risk.

But those discounts are now in jeopardy.

Although 60% or more of all Texas drivers benefit from credit-based insurance scoring ¹, the Texas Department of Insurance will consider a 10% “collar” on rates that consider credit information to determine risk. This means that Texans with positive credit scores could only receive a 10% discount when they might deserve much more.

The Legislature, the Department, and Texas Insurance Commissioner Jose Montemayor should be commended for exploring ways to increase insurance choice and competition as outlined in Senate Bill 14. However this “collar” runs counter to the objective of a competitive market. SB 14 already includes stringent consumer protections and this narrow collar will actually hurt consumers.

With the proposed collar, people with negative credit scores, who pose a higher risk, will only have to pay 10% more than someone who poses a much lower risk. It’s unfair because lower risk consumers will be forced to pay more to make up for higher risk consumers. Everyone should pay rates that reflect their personal risk and likelihood of filing claims.

The 10% proposal falls flat and here’s why:

• A study by EPIC Actuaries, LLC showed that Texas drivers with the lowest range of credit scores made 58% more claims on average than those with the highest credit score ranges.
• People with positive credit scores have significantly lower loss ratios (pose less risk). Should they only get a 10% discount, while people with significantly higher loss ratios would only have to pay 10% more? Not fair.
• It’s clear who’s getting the short end of the stick here: Lower risk Texans will foot the bill for people with the highest risk.
• The best solution for consumers is to allow companies to use the best tools available to better predict risk and set the most accurate rates possible.

You can take action to protect your insurance discount!

The Texas Department of Insurance is holding a hearing in Austin to discuss this issue on Wednesday, January 7, 2004 at 9:30 a.m. To protect your discount, you can:

• Attend the hearing and testify that you want insurance companies to use every tool possible to make sure that consumers are paying the accurate rates. Testify that you don't want to subsidize those who represent a high risk.
• Attend the hearing and submit a written comment expressing your opposition to the 10% collar that will raise rates for the large majority of Texans. (You don’t have to testify.)
• Fax or send written comments to the Department to explain that low-risk consumers should not have to subsidize high-risk consumers. Everyone should pay rates that reflect their own risk.

The Texas Insurance Commissioner needs to hear from Texas consumers like you!

For the latest information about the insurance market, please visit our Web site at www.tcais.org.