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Insurers Using Credit Score Earn Criticism

By Sally Maison
Published: Friday, November 27th, 2009

Despite efforts in recent years by consumer advocates, insurance providers are still allowed by Florida legislation to use credit ratings in determining the premium rates of policyholders. Advocacy groups say if they practice does not stop, it could seriously impair the lives of many Floridians as the economy continues to show little signs of recovery.

Insurers Using Credit Score Earn CriticismInsurance companies justify their practice by saying studies show that someone who is struggling with his credit score is more likely to file losses to an insurer. But critics retort that credit-based insurance is discriminatory and has nothing to do with rates.

Advocates found an ally in Commissioner Kevin McCarty, who is currently pushing a ban on the use of credit ratings in determining premium rates. He said earlier this week that if consumers sit back 20 years from now, they would wonder why they have let insurers use their credit score to compute insurance costs. McCarty added that the proposed change is similar to the ban in using race to compute premiums, which was practiced in the past. Opponents of credit-based insurance say the practice clearly discriminates a person since people of the same race or socioeconomic conditions share similar credit scores. McCarty goes on to contend that the issue is not only economic, it is also about civil rights.

Lawmakers who last year proposed to stop the use of credit score on auto insurance say the legislation did not pass the House and the Senate because insurers strongly lobbied against it. The Commissioner added that he intends to push his proposal despite earlier failure.

Lawmakers who are currently pushing for changes argue that there is no reason for insurers to tie credit score, profession, or education to premium rates. Republican Jennifer Carroll of Fleming Island added that those things are not synonymous to why a person should get high insurance costs.

However, the Florida Insurance Council maintains that they have sufficient data to prove that credit score is a strong indicator of risk. Gary Landry, the Council’s vice president, said that consumer rating is a reliable indicator, adding that they could not give up the practice since the insurance industry is all about gauging risk.

Landry continued that the argument about people’s credit ratings suffering because of the economic crunch is overblown. He said the crisis has given people a new mindset, which made them more attentive towards their credit score. Landry believes that everyone will see his premium rise if the practice is banned.

Meanwhile, the Bureau of Business Research at the University of Texas still could not find a link why people with good scores are less likely to file claims.

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