AFSCME 3357-HOF'S BLOG

Texas Dept. of Insurance Credit Scoring Study

At the request of the Texas legislature, the Texas Department of Insurance has compiled a study of credit scores as a predictor of insurance claims risk. The study concluded that credit scores correlate highly with claims risk. The use of credit scores to set insurance rates is controversial on at least two grounds. (1) Credit scores also correlate with race. (2) Low credit scores, a symptom of poverty, can result in effective uninsurability, and that doubles the burden of poverty.

I haven't studied this in great detail, but it seems like in the past few years, most legislatures have reacted to the increased use of credit scoring in insurance underwriting by allowing credit scores to be used as a factor when it can be shown to be a risk predictor, but limiting the weight that can be given to the credit scores either in the decision to underwrite, in setting the premiums, or both. This is an intelligent approach in my opinion.

TDI - Credit Scoring Study Synopsis