The Federal Trade Commission’s long awaited study, “Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance” was recently released and as expected, heated up the debate on insurers’ use of credit scores in automobile underwriting and rating. Insurers overall felt vindicated as the study supports their message that the use of credit in underwriting actually helps most consumers, particularly those who may not have great stats in other areas. Having a better credit score actually gives those consumers a better chance for coverage, insurers say.
“The FTC study of automobile insurers’ use of credit has reaffirmed the strong connection between credit information and the risk of loss and has determined that its use helps to increase the availability and affordability of insurance for most consumers,” the Property Casualty Insurers Association of America (PCI) said in a written statement.
Positive results, industry says
Some of the report’s major conclusions, according to the insurance industry, include:
However, the Center for Economic Justice and other consumer groups have cried foul, maintaining the study shows that African American and Hispanic minorities are indeed negatively affected by the use of credit — whether intentional or not. For another perspective, Birny Birnbaum has expressed his organization’s view on the FTC study in this issue’s “Closing Quote.”
In the meantime, a Congressional hearing on the FTC study and the use of credit scores at the state level that was scheduled for July 27 was cancelled by U.S. Rep. Melvin L. Watt, D-N.C., chairman of the Subcommittee on Oversight and Investigations. At this writing no alternative date has been selected to hold the hearing. Watts expressed the hope that the committee would hear from a wide array of interested parties.
Before the hearing was cancelled no industry representatives had signed up to testify — only consumer advocates and one regulator. With the debate in lap of Congress, we are sure the industry will be on the list testify, whenever the hearing is rescheduled.