March 10, 2003
Poll Finds
Texans Opposed to Use of Credit History in Setting Insurance Rates
By Terrence Stutz, The Dallas Morning News
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Mar. 10-AUSTIN, Texas-Most Texans want the Legislature to prohibit insurance companies from using credit history in deciding whether to sell someone a policy and how much they should be charged, a new survey shows.
In the Texas Poll, released as lawmakers consider proposed restrictions on the use of credit history by insurers, about two-thirds of those surveyed - 67 percent - say they want the practice banned.
Critics of so-called "credit scoring" by insurers said the results back up their argument that there is little relationship between a person's credit history and his or her risk to an insurance company either as a driver or homeowner.
"Consumers know that credit history and insurance risk are two separate issues and there is no link between the two," said Dan Lambe of Texas Watch, a consumer organization.
"They also know this is just one more tool in an insurance company's toolbox to deny access to insurance policies and increase rates."
But an industry spokesman defended the stance of insurers that there is a strong relationship between credit history and insurance risk - despite what the public might believe.
"The responsible use of credit information protects many Texas policyholders from having to pay higher premiums because, without the use of credit information, they could wind up subsidizing other customers who pose a high risk for insurance losses," said Beaman Floyd, director of the Texas Coalition for Affordable Insurance Solutions. The coalition represents four of the state's largest insurers.
Mr. Floyd cited a new study from the University of Texas School of Business that found a "significant relationship" between a driver's credit score and his risk of getting involved in an accident or filing a claim.
The study, paid for by the Legislature, said, the "lower a named insured's credit score, the higher the probability that the insured will incur losses on an automobile insurance policy." The study did not address homeowners insurance and credit scores.
Several bills have been filed this session to restrict or ban the use of credit scores by insurance companies. Tuesday, the Senate Business and Commerce Committee will begin hearings on some of the measures.
Many Democrats have been pushing for a ban on the practice, while Republicans have supported restrictions to prevent abuses. For example, consumers with little or no credit history are often penalized when their premiums are set.
Sen. Troy Fraser, R-Horseshoe Bay, chairman of the Business and Commerce Committee, said he supported restrictions rather than a ban because of a federal law that he believes would make it difficult to enforce a prohibition. That law gives companies certain rights in making business decisions.
"I understand the public does not want anything discriminatory to be used against them," Mr. Fraser said. "The problem is that under federal law, if we ban it totally, they still will use it, and we will lose our ability to regulate it."
Credit scores are based on consumer credit histories compiled by national credit bureaus. Those reports give a picture of how the consumer repaid loans and met other financial obligations, such as credit card balances. Financial troubles such as late payments, delinquencies and bankruptcies also are reflected.
The Texas Poll, conducted in February by the Scripps Data Center, randomly surveyed 1,000 adults by telephone Feb. 6-28.
The margin of error is plus or minus 3 percentage points.
In other results, 84 percent believe problems afflicting the homeowners insurance market are serious, and the same percentage believe insurers should be required to get approval from state regulators before raising rates.
Also, 79 percent of respondents believe that all homeowners insurance companies should be regulated by the state.
Currently, the vast majority of those companies operate outside regulatory oversight when it comes to rates.
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