Insurer Orgs Snarl At Mo. Credit Score Attack

By Daniel Hays

NU Online News Service, Jan. 30, 4:24 p.m.EST?A bid by Missouri's governor to ban credit record usefor insurance rating will hurt consumers and is based on a "fatallyflawed study," two insurer organizations said today.[@@]

The reaction, from the American Insurance Association and theProperty Casualty Insurers Association, followed an announcementThursday by Gov. Bob Holden that he was asking for a total ban oncredit scoring use for underwriting and rating, based on a MissouriInsurance Department study.

According to the department's research, urban and rural stateresidents suffer because in the lowest income areas--often in innercities and the southern portion of the state--the average creditscores were 12.8 points lower than the wealthiest ZIP codeareas.

Low credit scores for minority area ZIP codes hold true even ifthe individual residents have the same income level, maritalstatus, unemployment status, or education level as residents inpredominantly white neighborhoods, according to the department.

Representatives of AIA and PCI both noted that federal lawpermits credit scoring, and the AIA cited a 2002 American Academyof Actuaries finding that credit scoring was effective tool.

PCI said the Missouri report was fatally flawed in methodology.Diana Lee, PCI assistant vice president-research in Des Plaines,Ill., said the study only examined insurance score data aggregatedat a ZIP code level and did not take into account policyholders'loss experience.

"Insurers do not collect information on race, ethnicity orincome. They only compile data on risk factors and they apply thesefactors equally to every consumer."

She added that other studies conducted by EPIC actuaries and theUniversity of Texas "show that insurance scores are a powerfulpredictor of risk across all states, regardless of whether theyhave high or low minority populations and whether they have high orlow median household income."

AIA in Washington, D.C. noted that, last year, a Missouri lawtook effect that outlawed the use of credit scoring as the solefactor in underwriting and said the law should be allowed to workbefore a new one was considered.

PCI said that in passing that law legislators had rejected afull-scale ban.