Monday, July 21, 2003

Use of credit ratings may raise bills
Insurers revise scoring formula
Gannett News Service

http://www.poughkeepsiejournal.com/...u072103s1.shtml

Gannett News Service
Kenneth Smith of Mount Carmel, Ohio, is concerned about the recent rise in his insurance premiums. Because he pays cash for most things, including his 1986 pickup, his credit history is lacking. So his insurance company has raised his rates.
MOUNT CARMEL, Ohio -- Kenneth Smith owns a house and two vehicles free and clear. His only credit card, from Dillard's department store, has a zero balance. He pays his bills on time, with cash.

His reward? A higher auto insurance premium.

In 2001, the 72-year-old retired truck driver paid $248 every six months on insurance for his 1990 Mercury Cougar and 1996 Ford F-150 truck. That November, he received a letter from his insurance company, American Home Assurance Co., saying its adoption of a ''credit-based underwriting score'' for customers might jack up his premium.

It did. The one-two punch of a statewide rate increase and American Home's use of personal credit information pushed Smith's six-month premium to $317 in January 2002. Six months after that, American Home raised it again, to $387. Smith protested in vain, stunned that his financial austerity could have worked against him.

''They don't like people living within their means,'' he railed.

The nation's property and casualty insurers began incorporating credit data into their underwriting formulas in the 1990s. But as the practice spreads, opposition has mushroomed into a consumer rights battle.

Insurance companies say there is a statistical correlation between credit scores and the number and size of insurance claims. Consequently, 60 percent to 80 percent of policyholders -- those with good credit scores -- will see lower bills, said Dan Kelso, president of the Ohio Insurance Institute.

But the practice disgusts consumer groups, advocates for the poor, several state legislatures and real estate agents. One of the most vocal opponents, former Texas Insurance Department chief economist Birny Birnbaum, says credit scoring is blatantly discriminatory.

''Most insurers are not in the business of writing as much business as they can. They're in the business of making as much money as they can because if they can figure out a way not to write business in poor and minority communities without it being a case of redlining, then they'll do that,'' said Birnbaum, founder of the Center for Economic Justice.

Markets worried

The mainstream housing and mortgage markets are concerned. The Mortgage Bankers Association says home-sale closings are hampered by the lack of insurance. The National Association of Realtors dislikes the flaws of using credit reviews and sees no correlation between credit and insurability.

In Scripps Howard's spring 2003 Texas Poll, 68 percent of 1,000 Texans -- who tend to pay high premiums -- favored a ban on credit scoring. The Texas House of Representatives gave citizens their ban in a 138-0 vote, only to see state Senate leadership kill it.

Other states, including Hawaii, Maryland and Washington, have outlawed credit scoring for most insurance purposes. California voters banned it for auto policies. Indiana went with industry-supported rules.

Insurance agents themselves are not entirely convinced that the link is appropriate.

In an article in Insurance Journal magazine, David Swift, president of the National Association of State Farm Agents, wrote that the industry knows how to juggle statistics to get what it wants.

''The California Department of Motor Vehicles,'' Swift wrote, ''did a study 30 years ago that showed people with dark hair had significantly worse driving records than those with blonde or red hair. Another study, in Australia, showed Geminis had the worst driving records among the astrological signs, followed by Taurus and Pisces.

''Those studies suggest that hair color and astrology might be considered a rating variable for underwriting. Indeed, the insurance industry may want to hire Miss Cleo as an underwriter.''

That's true. I asked my insurance co not to pull credit to save an inquiry but i gave up on that Idea because the quote was so high. I have a lot of tickets. When they pulled my credit the new quote was just about half as much. So it could work either way.



I wish there was a way to do "driving record repair."

"So it could work either way. "

Of course it can, what's the point?

The man who has no debt needs to pay HIGHER rates so that you can get a lower rate?