March 10, 2003
UT report finds link between credit score and insurance losses
Associated Press, Houston Chronicle
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AUSTIN - A University of Texas study released last week showed a "significant relationship" between a person's credit score, which indicates credit history, and losses incurred on that person's insurance policy.
"In general, lower credit scores were associated with larger incurred losses," an executive summary of the study said.
Lawmakers are studying measures to change how automobile and homeowners insurance rates are regulated in Texas. One issue they are studying is credit scoring.
Some lawmakers have filed legislation that would ban insurance companies from using a person's credit score in their rate setting.
Insurers say credit scores make pricing more accurate.
The study analyzed a large, random sample of automobile insurance policies from the Texas market to determine if credit histories and losses were statistically related. The study did not explain why credit scoring adds significantly to an insurer's ability to predict insurance losses.
Sandra Ray, a spokeswoman at the industry group Southwestern Insurance Information Service, said the study confirms what companies have been saying all along.
"The study shows that risk takers incur more losses," Ray said. "Insurers have to consider the risk variable when they write policies and how they price policies and this has been proven to be a very accurate predictor of risk."
Rob Schneider, an attorney at Consumers Union, said, "There is a correlation generally with credit scores but that doesn't mean that it is fair to any particular individual."
He said another study shows that the use of credit scoring has a negative impact on lower income people and minorities.
Ray said that a credit score is based solely on factual data and does not "even attempt to interpret age, race or gender or income."
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