FTC Taking Another Look At Credit Based Scoring
The Federal Trade Commission(FTC) has ordered nine major insurance companies to provide information on their use of credit based scoring in determining home insurance premiums. The use of credit based scoring has been controversial, many consumer advocacy groups feel that it unfairly profiles certain racial groups.
The orders require information from the nine largest private providers of homeowners insurance, which have roughly 60 percent of the homeowners insurance market in the U.S.: State Farm Mutual Automobile Insurance Company, The Allstate Corporation, Fire Insurance Exchange, Nationwide Mutual Insurance Company, The Travelers Companies, Inc., United Services Automobile Association, Liberty Mutual Holding Company, Inc., The Chubb Corporation, and American Family Mutual Insurance Company.
Credit based scoring has been mainly used by the auto and property insurance sectors. A number of states have attempted to ban it’s use over the years but insurers have vehemently opposed them.
Florida’s state regulator was one of the leading figures against credit scoring when Congressional hearings were held on the matter back in May. The last study by the FTC was convened in 2003 and was completed last year, it found that credit based scoring was an accurate measure to determine risk.
Needless to say that finding was slammed by a number of groups. There is a lot of evidence that credit scoring may be an accurate measure of risk but there is also a lot of evidence that certain groups are disproportionately affected.
