You are here:HomeIssuesInsurance Scoring & Underwriting Issues2011Insurers, Consumer Groups Blast Texas Insurance Scoring Cap

Insurers, Consumer Groups Blast Texas Insurance Scoring Cap

Something unusual happened in Texas last week: insurers and consumer groups both testified against a proposal on the use of insurance scoring. But their reasoning...
October 26, 2011

Something unusual happened in Texas last week: insurers and consumer groups both testified against a proposal on the use of insurance scoring. But their reasoning was different. The insurers said it was too restrictive, while consumers said it was not restrictive enough.

At issue is a rule about to be announced by the Texas Department of Insurance to institute a ten percent limit on the amount by which insurers may adjust consumers' rates because of their credit histories. Insurance Commissioner Jose Montemayor is expected to adopt the rule shortly after the public-comment period for the proposed change closes today. Consumer groups question whether the practice accurately reflects risk. And even if it does, they say credit scoring is fundamentally unfair and should be limited as a matter of public policy. Industry groups say credit scoring accurately predicts risk and that limiting its use will increase rates for customers with good credit.

The rule also allows companies to go outside that 20 percent up-or-down limit if they can justify the rates with actuarial evidence. Consumer groups say the proposed cap is meaningless because law already requires actuarial justification for all insurance rates. Currently Maryland, Utah, Hawaii and Washington are among states that have banned some credit-based scoring practices for auto and homeowners insurance. A number of other states also are considering bans.

What It Means to Agents: Texas may be leading a new way in this area, i.e. not excluding the use of insurance scores, but rather implementing moderate conditions on what goes into insurance scores by limiting the actual percentage impact to rates. Further, the overall 20% rate band introduces a type of flex-rating approach to Texas' previous prior-approval-only status for personal lines.

PIA National Contact

Jon Gentile
Director of Federal Affairs
jonge@pianet.org
(703) 518-1365

Patricia A. Borowski
Sr. VP, Government/Regulatory Affairs
patbo@pianet.org
(703) 518-1360