The insurance industry has been noticeably quiet about its use of insurance scoring over the past few years. And its silence has raised the ire of consumers and agents who suspect insurers are using the arcane methodology to sneak around state laws that prohibit them from discriminating against minorities and people with lower incomes.In November, several people filed a lawsuit in U.S. District Court, Western District of Texas, San Antonio Division, against Allstate Insurance Co., accusing the carrier of using credit scoring to replace geographic redlining, which was forbidden years ago.
Attorney Christa Collins says her firm-James, Hoyer, Newcomer & Smilijanich, in Tampa, Fla.-has statistical evidence showing Allstate's insurance scores are discriminatory, including a clear distinction of their impact on minorities as compared with Caucasians from the same agency.
Allstate vehemently denies the charges. "There is absolutely no basis in fact for those allegations," says Michael Trevino, spokesperson for the Northbrook, Ill.-based carrier. And according to industry sources, credit-based insurance scoring indicates a person's ability to manage their finances-which has nothing to do with race, ethnicity or income.
Yet, complaints from agents and consumers have prompted state regulators to take a closer look at how minorities and low-income people are being affected by insurance scores. The National Association of Insurance Commissioners (NAIC), Kansas City, Mo., is currently reviewing the use of insurance scores for underwriting and rating, including if the scores have a disparate impact on low-income or minority consumers.
Some data suggests a discrepancy.
At a public hearing on the use of credit scores in underwriting and rating at the winter meeting of the NAIC, Maryland Insurance Commissioner Steven B. Larsen presented data from two ZIP codes in the Baltimore area that shows a discrepancy in premiums. In ZIP code 21210, where 12,002 white and 265 minority residents have an average income of $45,998, the average auto premium was $972. In ZIP code 21217, where 3,665 white and 48,072 minority residents have an average income of $14,813, the average premium was $1,357.
Other studies, however, reveal no statistical correlation between credit-based insurance scores and a person's income or race. In a report, titled "Insurance Scoring In Personal Automobile Insurance," Conning & Co., Hartford, Conn., cites a 1998 study from the American Insurance Association showing no statistical difference between insurance score and income. Conning also cites a 1999 study from the Virginia Bureau of Insurance, which concluded that neither income nor race alone is a reliable predictor of insurance bureau scores in that state.
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