Credit Accurate in Predicting Insurance Risk, TDI Study Confirms
A Ban Would Raise Rates for Many Texans

The following statement can be attributed to Beaman Floyd, executive director of the Texas Coalition for Affordable Insurance Solutions. The statement comes in response to the Texas Department of Insurance (TDI) study of credit-based insurance scoring.

"The TDI study released today reconfirms that 'credit scoring significantly improves pricing accuracy when combined with other rating variables in predicting risk.'"

"The study showed that credit scoring is not unfairly discriminatory because credit scoring is not based on race, nor is it a precise indicator of one's race."

"Further the study confirmed the predictive nature of credit information by showing that the claim experience for the 10 percent of policyholders with the worst credit scores was 1.5 to 2 times greater than that of the 10 percent of policyholders with the best credit scores."

"Lawmakers are looking for ways to reduce insurance premiums yet as Commissioner Montemayor wrote in a letter to Governor Rick Perry, a ban on credit scoring would 'raise premiums for a very large number of policyholders' and force an 'immediate price shock that would be unrelated to a change in risk.'"

"In fact, Commissioner Montemayor succinctly described the value of risk-based rating practices in setting insurance premiums. In his letter to Governor Perry, the Commissioner wrote:

'By the nature of risk-based pricing and underwriting, all factors used in insurance have a disproportionate impact to some extent. One could make a convincing argument to ban the use of all risk-related factors based solely on disproportionate impact. Effectively, we would ban risk-based pricing and underwriting and revert back to the pricing system where we homogenize the risk and essentially charge everyone the same price -- regardless of risk. That would be a set-back to all Texans, of all races, especially those of moderate to lower income whose risk remains low.'

"Risk-based rating, to include credit-based insurance scoring, must be part of a fair and accurate system so that low risk consumers are not forced to subsidize higher risk consumers and incentives exist to actually minimize risk."

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The Texas Coalition for Affordable Insurance Solutions (TCAIS) is an alliance of insurance providers and trade organizations committed to working with elected officials, the media and the public to find public policy solutions that promote a competitive insurance marketplace that maximizes benefits for buyers and sellers of insurance. TCAIS members include American Insurance Association, Allstate, Nationwide, State Farm and USAA.