U.S. insurers lash out on credit scoring report

U.S. insurers are fighting back in the credit scoring debate, releasing their own analysis to criticize a recent report by the Missouri Department of Insurance (MDOI). The MDOI study found that low income and minority groups were negatively impacted by credit scoring a practice used by large U.S. insurers where a person’s credit history is used as a factor in underwriting.Now the Insurance Information Institute (III) has released a report poling holes in the Missouri study. Among the points noted by the III is the MDOI study is based on zip codes, rather than individual data i.e. the MDOI looked at aggregate credit scores for zip codes with high proportions of low-income or minority residents. This runs counter to the insurance principle of matching the rate to the individual risk, and also does not take into account who within a zip code even owns a home or a car, much less carries insurance.More troubling, says III chief economist Robert Hartwig, is that the study actually perpetuates social stereotypes. At its heart seems to lie an indefensible bias that somehow minorities must have bad credit behaviors and the study is determined to prove it which it does not. The MDOI study in effect perpetuates stereotypesessentially arguing that African Americans, Hispanics and other minority groups are less able to build and maintain good credit histories.”Hartwig equates the minority/low income debate to a case of “sour grapes” for those faced with multiple studies showing the correlation between credit scores and loss trends. “Having lost the argument over statistical validity, a small group of regulators is now attempting to argue that the use of credit scores by insurers produces an adverse impact on minority groups and low-income individuals.”