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Editorial: Credit Scores Shouldn’t Determine Insurance Premiums

What does your credit score have to do with your auto or home insurance premiums? That’s the question asked in a recent Dallas Morning News editorial. In the newspaper’s opinion, your credit score should have nothing to do with your premiums. But that’s not the case in Texas. Auto and home insurance companies are allowed to base your premiums in part on your credit score — and the lower your score, the higher your premiums. Here are excerpts from the editorial:

If you were to apply for a car loan, a bank would review your repayment history, not whether you could parallel park without dinging another vehicle. But if you want insurance, a poor credit history could cost you dearly, even if you’re a good driver or responsible homeowner.

Now, if you’re wondering what credit history has to do with insurance premiums, you’re not alone. Credit scoring isn’t new, but it’s taking on a troublingly larger role in determining insurance premiums for autos and homes.

A poor credit report, on average, now costs Texas consumers 42 percent more on home and auto policies, according to a Dallas Morning News analysis of insurance industry data published Sunday. In 2009, when the newspaper conducted the same analysis, the gap was 35 percent.

No one expects a reckless driver to pay the same premium as one with a spotless record. But creditworthiness shouldn’t matter since insurance is paid upfront, not on credit like a car loan.

As a result, credit scoring for insurance hurts lower-income, minority policyholders and penalizes responsible people who have fallen on tough times. However, based on an industry-commissioned study, Texas insurers insist credit scoring accurately predicts a customer’s insurance risk, allows companies to reward their better customers and ensure higher-risk customers pay their fair share.

How is a person with late payments on their record any more likely to be hit by another driver or sustain hailstorm damage to a roof? Have Texans suddenly become less diligent homeowners and drivers since 2009?

More likely is that otherwise good drivers and homeowners are bearing the brunt of credit scores damaged during the recent recession. In fact, a poor credit score is likely to have more of an impact on your premium than if you had filed a fire claim on your home or had an accident on your driving record.

Texas came close to banning credit scoring in 2003 but instead only prohibited insurers from penalizing consumers for a skimpy credit history or using unpaid medical bills in rate-setting decisions. Insurers tell their customers that they review credit scores but don’t say what factor the scores play in determining a premium. Consumers should know this so they can pick an insurance company accordingly.

State lawmakers and regulators should take another look at the use of credit scoring in insurance.

The credit-score penalty

Percentage increases in insurance coverage for consumers with poor vs. good credit scores for North Dallas:

Auto insurance:

  • Allstate 14.7
  • Progressive 40.4
  • State Farm 46.3

Home insurance:

  • Allstate 54.2
  • Liberty Mutual 46.3
  • State Farm 31.6

SOURCE: Texas Department of Insurance

Bob Kraft

I am a Dallas, Texas lawyer who has had the privilege of helping thousands of clients since 1971 in the areas of Personal Injury law and Social Security Disability.

About This Blog

The title of this blog reflects my attitude toward those government agencies and insurance companies that routinely mistreat injured or disabled people. As a Dallas, Texas lawyer, I've spent more than 45 years trying to help those poor folk, and I have been frustrated daily by the actions of the people on the other side of their claims. (Sorry if I offended you...)

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