Policy Documents

Research & Commentary: Credit Scoring Debate in Massachusetts

August 17, 2011

A debate over the use of credit scoring to determine insurance rates and eligibility continues to rage in Massachusetts. According to the Patriot Ledger, the Massachusetts Association of Insurance Agents (MAIA) has recently filed a new proposed ballot question that would make existing regulations banning the use of certain non-economic factors, including credit scores, education and occupation part of state law. 

Several bills regarding credit scoring for insurance have passed through the Massachusetts legislature during the past session. One, filed this session by the MAIA, is Senate Bill No. 461, which would prohibit the use of socioeconomic factors like credit scoring and mirrors the recently proposed ballot question. Another, proposed by House Majority Leader Ron Mariano, would lift the existing ban on using credit histories while also adding some restrictions on the practice, including restrictions on how insurers could use credit scores. 

Most insurers and some consumer groups believe credit scoring makes sense and is fair. A wealth of research has demonstrated that consumers who do not manage their credit well tend to make more-expensive insurance claims. Insurers that use credit scores say the practice allows them to provide lower rates to consumers who produce fewer claim losses. 

Politicians and some other consumer groups say the use of credit scores is unfair because the scores do not directly affect risky behavior or correlate with the frequency of claims, only their cost. 

Although the two sides will never agree, the research shows on balance the use of credit scores appears to produce lower, fairer rates for most consumers. States that have barred the practice have not realized lower rates for consumers, and most comprehensive studies have found nothing unfair about the practice. 

The following articles address this issue from a variety of perspectives: the insurer, self-described consumer advocates, and consumers. 

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Issue Update: Credit Scoring
http://www.iii.org/media/hottopics/insurance/creditscoring/
The Insurance Information Institute examines the credit-scoring debate, highlights efforts currently being undertaken in state legislatures, and argues against credit-scoring bans.

MASS. MARKET: Fight resumes over using credit scores for insurance
http://www.patriotledger.com/archive/x1510865183/MASS-MARKET-Fight-resumes-over-using-credit-scores-for-insurance#ixzz1Udeez89n   
The Patriot Ledger examines the renewed debate over the use of credit scores in Massachusetts and the efforts by the MAIA to make the ban on the use of credit scoring part of Massachusetts state law.

Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance
http://heartland.org/policy-documents/credit-based-insurance-scores-impacts-consumers-automobile-insurance
This report from the Federal Trade Commission examines whether credit scores and credit-based insurance scores affect the availability and affordability of consumer credit and automobile and homeowners insurance.

Massachusetts Agents Seek Ballot Measure to Ban Insurers’ Use of Credit Scores
http://www.insurancejournal.com/news/east/2011/08/04/209454.htm
This article from the Insurance Journal examines various opinions on the insurance credit scoring debate in Massachusetts.

Overview of the Texas Credit Study
http://www.tdi.state.tx.us/reports/credit3.html
Summarizes a Texas Department of Insurance report that concludes there is a link between credit scoring and the accurate assessment of the risk of future claims.

Effect of Credit Scoring on Auto Insurance Underwriting and Pricing
http://heartland.org/policy-documents/effect-credit-scoring-auto-insurance-underwriting-and-pricing
This report from the Washington State University Social and Economic Sciences Research Center examines the effect of credit scoring on auto insurance underwriting and pricing, concluding that credit-scoring impacts are not equally distributed across demographic groups.

Credit-Based Insurance Scoring: A Simmering Debate
http://www.irmi.com/Expert/Articles/2002/Olson03.aspx
This article for the International Risk Management Institute examines the differing perspectives in the credit-scoring debate, including those of insurance providers and the Consumer Federation of America.

Credit-Based Insurance Scoring
http://www.aiadc.org/AIAdotNet/landing.aspx?docid=303972
The American Insurance Association examines the benefits of credit scoring from the insurer's perspective.

What's Credit Got to Do With It?
http://www.iiminfo.org/consumers/InsuranceScoring/tabid/1723/Default.aspx
The Insurance Institute of Michigan explains the credit-scoring issue for individual citizens and provides a Q&A on the debate.

NAMIC: Wisconsin Senate's Approval of Credit-based Insurance Scoring Legislation Could Jeopardize Low Rates
http://www.namic.org/newsreleases08/080131nr2.asp
The National Association of Mutual Insurance Companies (NAMIC) comments on the negative effects of banning credit-based insurance scoring on insurance rates in Wisconsin.

Need Credit or Insurance? Your Credit Score Helps Determine What You'll Pay
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre24.shtm
The Federal Trade Commission's Facts for Consumers describes how credit scoring works, how consumers can improve their score, and the options available for individual applicants.