The Property Casualty Insurers Association of America (PCI) yesterday voiced its objection before the Texas Senate Committee on Business and Commerce to SB 72, which would prohibit insurers from using credit-based insurance scores.

In his testimony, Joe Woods, VP state government relations for PCI said using credit information helps consumers, and more drivers likely would see rate increases than decreases if credit information were banned from rate considerations.

"Let's begin with a clear understanding of what this rating and underwriting tool really is," Woods said. "Credit-based insurance scores measure the insurance risk, not the credit risk, of consumers; they are generated from credit histories and insurance claims data, and are distinct from scores based solely on credit histories intended for other business purposes such as making decisions on loans. Several studies have found that credit-based insurance scores are among the three most predictive tools available for automobile insurance. The predictive value of credit-based insurance scores has been hotly debated and vigorously studied over the last decade, and every credible study that has been done has found that they are highly predictive of insurance losses."

Studies by the Michigan Office of Financial and Insurance Services in 2002, the University of Texas in 2003, the Texas Department of Insurance in 2005, and the Federal Trade Commission in 2007, all confirmed credit-based insurance scores are highly predictive of insurance losses, Woods said, and a 2012 study by the Arkansas Department of Insurance concluded that credit-rating based insurance scores result in positive or neutral premium effects for 87 percent of insurance consumers, and only 13 percent see a negative effect.

"If credit based insurance scores were banned, the 13 percent who are currently paying more for their insurance based on their predicted losses would see their premium decreased," Woods said. "The losses would still occur, and the other 87 percent of consumers would have to pay more premium than their predicted losses call for in order to subsidize the higher risk insureds. Even if you factor out the consumers with neutral results, more consumers would be hurt by a ban on the use of credit based insurance scores by a 3.35 to 1 ratio; 43 percent would lose credits while 13 percent would be subsidized."

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