| Insurers' use of credit
reports to set premiums in question Practice may open the door to discrimination based on race, income Tuesday, October 30, 2001 By JANE HADLEY SEATTLE POST-INTELLIGENCER CONSUMER AFFAIRS REPORTER State Insurance Commissioner Mike Kreidler isn't the only one worried about a growing trend in the insurance industry -- charging people more for auto and home insurance based on their personal credit records. Some agents for Allstate Insurance Co. think this "credit scoring" opens the door to discrimination based on race and income. They're so concerned about a return to the old days of redlining that they want to speak out at Kreidler's public hearings on the issue this week. But there's a problem. Allstate Insurance Co. warned its agents about expressing any opposition at the hearings. In an Oct. 15 letter to the agents' national association, Allstate Field Vice President A. Darryl Page cited a policy against testifying on the company's legal and business matters without "prior approval." And he told agents that Allstate's corporate departments are handling the credit-scoring controversy for the company, adding, "I hope this has brought some clarity to the issue." The industry denies that using credit records to set premiums is discriminatory, saying statistical studies show a close correlation between credit scores and insurance claims. But the people who sell insurance for the industry want their own voices heard. Last week, the National Association of Professional Allstate Agents complained in a letter to Kreidler that "captive insurance agents who may desire to participate and contribute at hearings regarding credit scoring and redlining have been prevented from doing so by threats of retaliation by their companies." Yesterday, Allstate did not respond to the Seattle Post-Intelligencer's questions about the warning letter to agents and about the criticisms of credit scoring. Stephanie Marquis, a spokeswoman for Kreidler, said yesterday that the commissioner's office has not heard of any company other than Allstate discouraging agents from participating in the hearings. A hearing in Spokane last week reportedly drew a standing-room-only crowd. Kreidler held another hearing last night in Yakima, and one is scheduled for Thursday night in Seattle. Marquis said some agents attended the Spokane hearing. "We've had many calls from agents," she said. "We've heard from company agents and from independent agents. I would say the majority of them are against the practice." She said Kreidler plans to introduce legislation in the next legislative session to set some guidelines for the use of credit scoring. Most credit scores are based on such things as bill payment history, amounts owed, length of credit history, and types of credit used. However, exactly how those patterns are weighted and evaluated differ from time to time and from company to company. Insurance companies have been using credit scoring for several years, but they've stepped up the use recently, creating controversy. One Seattle company began canceling people's insurance earlier this year based on their credit scores, but backed off the practice when it created a public fuss, Marquis said. The same day Page's letter went out to exclusive Allstate agencies, the National Association of Professional Allstate Agents wrote Kreidler blasting the use of credit scoring. They said it is a "secret methodology" that can't be examined by the insurance commissioner. A credit score also is a "moving target" that can abruptly or frequently change, they argued. Those who have suffered financial setbacks as a result of divorce, death of a spouse or major medical bills stand to be unfairly affected, the group said. "The American way is to be judged on those things that are directly relevant to the subject," the letter continued. For auto insurance, that's tickets, accidents and vehicle usage. For property insurance, the group said, relevant information includes the condition of the property and past losses. But one of the group's major accusations is that credit scoring is designed to allow insurers to discriminate based on race and income. "Credit scoring appeared when insurance companies were denied the ability to overtly redline geographical areas and certain minority groups," the association said. "Credit scoring is a new method of redlining meant to replace the old method." The defenders of the practice say that's not true. "Credit scoring is not based on how much you make," said Karen Kuwahara, who sells personal lines of insurance for Brian Ogishima & Associates, a Beacon Hill insurance agency. "It's based on how you manage your money. If you're a grocery store clerk, you can have just as good credit as someone making $100,000 a year." Kuwahara said credit scoring is mainly used now to evaluate new applications, not existing policies. The Seattle hearing is set for 6:30 p.m. to 8:30 p.m. at the Best Western Executive Inn at 200 Taylor Ave. N. In accordance with Title 17 U.S.C. Section 107, any copyrighted work in this message is distributed under fair use without profit or payment for non-profit research and educational purposes only. [Ref. http://www.law.cornell.edu/uscode/17/107.shtml] |