Insurance commissioner won't endorse ban on credit scoringMontemayor urges lawmakers to avoid disrupting insurance market.
The state insurance commissioner said Tuesday that he won't recommend that the Legislature ban the use of credit scores in setting insurance premiums, saying such a move could disrupt the home and auto markets.
Last month, the department released a study showing that black, Hispanic and low- to moderate-income customers generally have much lower credit scores than Anglos, Asians and higher income customers. As a result end up paying higher insurance premiums, with the discrepancy in some cases as high as 400 percent.
The study also found a correlation between low credit scores and the likelihood that people will file an insurance claim.
Insurance Commissioner José Montemayor, in the final part of the report, said that credit scoring is not "unfairly or intentionally discriminatory" and is not based on race.
State Sen. Rodney Ellis, D-Houston, said he was "deeply disappointed" by Montemayor's decision, especially because the department's own studies "have shown flatly" that credit scoring discriminates against minorities and lower-income Texans.
Ellis is among several lawmakers who have said they plan to sponsor legislation banning or severely limiting the practice.
Leading consumer groups, including AARP, Common Cause, the League of United Latin American Citizens and the National Association for the Advancement of Colored People, also have urged a ban or severe limits on the use of credit scoring by insurance companies.
Montemayor, in a letter to Gov. Rick Perry and legislative leaders, wrote: "I do not have a legal basis to ban a practice that has a disproportionate impact if it produces an actuarially supported result and is not unfairly or intentionally discriminatory.
"Credit scoring is not unfairly discriminatory as defined in current law because credit scoring is not based on race, nor is it a precise indicator of one's race," the commissioner wrote.
The new study establishes that credit scoring "signifi- cantly improves pricing accuracy" when combined with other factors to determine a person's risk as a driver or a homeowner, Montemayor said.
The study showed that policyholders with the worst credit scores, in the bottom 10 percent, were up to twice as likely to file claims than policyholders in the top 10 percent.
Montemayor said that, if the Legislature opts to outlaw or limit insurers' use of credit histories to set prices, it should phase in the changes to avoid insurance market disruptions.
In his letter, the commissioner said he was initially skeptical of the link between credit history and insurance risk but changed his opinion after the study.
Mark Hanna, a spokesman for the Insurance Council of Texas, said that the final report "verifies what insurers have been saying all along; it's accurate and there's no unfair discrimination among policyholders. The key word remains accuracy. With the help of credit scores, each policyholder pays a premium that more closely matches his or her individual risk factors."
http://www.statesman.com/hp/content/shared/tx/legislature/stories/02/2credit.html
