Texas
Consumers Benefit
from Credit-Based Insurance Scoring
December 9, 2003
Statement from TCAIS Director Beaman Floyd
Although the Legislative
session is over, the debate surrounding insurance in Texas
wages on, and we look
forward to keeping our supporters engaged and informed as we
transition into a competitive marketplace. This issue of
the TCAIS
Insider is intended to bring you up to speed on the latest “Hot
Topic” in Texas insurance: credit-based insurance scoring.
Since the passage of Senate Bill 14 during
the last legislative session, credit-based insurance scoring
continues to receive
a lot of attention. Proponents of this risk-assessment method
know that credit-based scoring is an essential and objective
tool to establish fair and accurate premiums for Texas consumers. In fact, this tool was validated by two recent
studies by the University
of Texas and EPIC
Actuaries, which
found
a significant
relationship between a person’s credit and their potential
for filing an insurance claim. People with positive credit
scores are less likely to incur losses.
Through SB 14, Texas consumers can benefit
from the best kind of credit-based scoring. Texas law is
a “win-win” because
it includes stringent consumer protections that dictate how
credit information can be used, while allowing companies to
use credit information to differentiate between lower and higher
insurance risks…granting discounts to consumers with
positive scores.
Without credit-based scoring, lower-risk
consumers would pay more to subsidize individuals who pose
higher risks.
And
that’s
unfair.
The next fierce debate surrounding credit-based
scoring focuses on restrictions on the discounts granted
to consumers who
pose lower risks. The Texas Department of Insurance is scheduled
to consider this issue in January 2004. Such “collars” actually
penalize consumers with positive scores. Recent developments
in Maryland are case in point: When credit-based scoring was
restricted in that state, insurance premiums increased for
many lower risk policy holders with positive credit scores.
In this scenario, people with poor scores reap the benefit
of lower premiums. Again, that’s an unfair situation
that we don’t welcome in Texas.
Ultimately, we need to encourage responsible use of credit-based
insurance scoring to provide fair and accurate premiums
for Texas consumers.
As we transition to a competitive insurance marketplace,
TCAIS will continue to support policy decisions that
promote healthy
competition, provides Texans with a greater choice in
policy options, and prevents fraud and claims abuse.
For the latest information about the insurance
market, please visit our Web site at www.tcais.org.
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