Florida regulators and legislators target insurers’ use of credit scores
Feb 19, 2009
South Florida Sun-Sentinel--February 19, 2009
By Julie Patel
Florida insurance officials want to effectively ban insurers from using credit scores to set residential and automobile insurance rates.
The state Office of Insurance Regulation discussed the proposal this week with insurers and consumer advocates. The Florida Cabinet, a small group of state leaders that includes the governor, will have the final say.
Several legislators are drafting bills that would prohibit insurers from using credit scores to set insurance premiums. The insurance department’s proposal comes during a recession that could affect consumers’ credit scores.
Insurance companies started using credit information, called “insurance scores,” in the mid-1990s as one factor in predicting the likelihood customers would file claims.
Opponents of insurance scores say they unfairly target certain segments of the population, including minorities, poor people and even some religious groups that often have less credit information available for review.
Insurers say credit scores are among the most accurate predictors of risk and that without the information, premiums for people with good credit probably will increase significantly.
Consumer advocates say credit scores are weighed byinsurers as heavily or more than factors that are more likely to accurately predict risk, such as whether someone has hurricane shutters or a poor driving record.
“I’ve had customers with no tickets, no accidents, who could not qualify for preferred rates because of their low credit scores,” Rep. Priscilla Taylor, D-West Palm Beach and an insurance agent who filed a bill, said at the hearing.
Under current state law, insurers must check customers’ credit reports every two years and the new information can be used only if the score has improved.
A provision bars insurers from using credit scores as the only criterion for denying coverage or charging higher rates. But it was hard for state insurance regulators to enforce because an exemption from Florida public records laws allowed insurers to keep their pricing models secret for competitive reasons. That exemption expired last year.
State insurance officials’ new proposal would require insurers to provide details that would help the state ascertain whether credit information that’s used is “unfairly discriminating.”
Officials from Allstate, GEICO, Nationwide, Progressive and State Farm testified Wednesday about how they use personal credit information and how they have addressed concerns about the effects of the scores on minorities and other groups.
Eric Lamb, a senior actuary with Allstate, likened credit information to smoking – one factor life insurers use to predict a customer’s life expectancy.
Greg Hayward, a senior actuary with State Farm, said the company stops using credit information for customers who have had their policies for more than three years and reduces the effects of credit scores for people who have little or no credit information.