You are here:HomeIssuesInsurance Scoring & Underwriting Issues2003Texas Begins Review of Insurance Based Credit Scoring

Texas Begins Review of Insurance Based Credit Scoring

The Texas Department of Insurance (TDI) is about to place the practice of insurance based credit scoring under a microscope. TDI is beginning a comprehensive...
October 21, 2003

The Texas Department of Insurance (TDI) is about to place the practice of insurance based credit scoring under a microscope. TDI is beginning a comprehensive review process to determine the accuracy of, and need for, the practice. All Texas insurers who use credit scoring in their underwriting practices were required to file their models with TDI in September 2003. Since that time, TDI staff has been reviewing those models to determine if they are in compliance with Senate Bill 14 and, ultimately, based on sound actuarial practices.

Insurers are being required to prove that every percentage point of rate differential they intend to use is based on actual losses. TDI will also review the underlying data that is entered into credit scoring models to determine whether the data provided by companies in justification of credit scoring models is valid. The results and analyses of these studies will be provided in reports which will be public information. The department is also issuing a Request For Information (RFI) as it designs a study to look at the impact credit scoring has on any class of individuals, including classes based on income and ethnicity.

"Insurance companies that cannot prove that their models or data accurately reflect their risks will not be allowed to use credit scoring," declared Insurance Commissioner Jose Montemayor. "TDI will begin the examination of credit scoring from the bottom up. Beginning on January 14, 2004, I will not concede a single percentage point to insurers unless they can prove it."