PCI Notes Md. Credit Study Shows No Adverse Impact on Minorities


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The Property Casualty Insurers Association of America has issued a bulletin noting that a recent report, issued by the Maryland Insurance Administration (MIA) on the use of credit-based insurance scoring, found no basis for any conclusion that credit history is skewed toward ethnic minorities or low-income individuals.

“Not surprisingly, Maryland’s study provided no conclusive evidence that insurance scores are anything less than objective, accurate underwriting and rating devices benefiting most policyholders with lower premiums,” stated PCI’s assistant vice president of research Diana Lee. “Public policymakers should keep in mind that the Maryland report like so many others before it did not find a connection between insurance scores and income or ethnicity. Without conclusive proof regarding the use of credit and low-income and minority populations, further restrictions against insurance scoring should not be made.”

Lee also noted that State insurance departments in Virginia, Michigan, Washington, Alaska and Missouri have all conducted similar studies on insurers’ use of credit.

The February 2004 report, which has been posted to the MIA’s Web site, indicates “there is insufficient data to conclusively determine whether the use of credit scoring by insurers has an adverse impact on low-income or minority populations. This is due, in part, to the fact that insurers do not collect information regarding an applicant’s race or income. The MIA has neither the data nor the information needed to reach a definitive conclusion regarding the impact of the use of credit scoring by insurers on low-income and minority populations.”

The report also states that the MIA will continue to monitor the personal lines insurance market based on consumer complaints, market conduct investigations and data collection by zip code in order to determine if the use of credit history, as permitted under Maryland law, has an adverse impact on low-income or minority populations. In addition, the MIA will be participating in a multi-state study initiated by the Missouri Department of Insurance to determine the impact of credit scoring on minorities and low-income populations.

“Because insurance companies do not collect and most likely will never collect information on race or income, there will never be a conclusive finding by anyone that credit scoring adversely impacts ethnic or low-income groups,” Lee stressed. “Hopefully public policy makers will finally come to accept this fact and stop commissioning any more of these types of studies.”

The PCI also noted that Maryland had enacted “one of the most restrictive laws in the country regarding an insurer’s use of credit information in underwriting and rating for homeowners and auto insurance. State law prohibits homeowners insurers from using credit information in underwriting or rating. The law also prohibits private passenger automobile insurers from using credit information for underwriting, but allows such information in rating new policies within 40 percent rate collars — either a surcharge or discount of up to 40 percent. The language of the rate collars sunsets Oct. 1.”

The bulletin pointed out that “Numerous studies have documented the high degree of correlation between insurance scores and future losses.” It specifically cited a Texas study that found a “significant relationship” between an insurance score on a policy and incurred losses for that policy. The study found that “in general, lower credit scores were associated with higher incurred losses.” The PCI also referred to a comprehensive study conducted by EPIC Actuaries, which, after examining 2.7 million auto policies, and after adjusting for other variables, “showed that individuals with the lowest insurance scores were found to incur 33 percent higher losses than average, while those with the highest scores incurred 19 percent lower losses than average.”


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