The House Subcommittee on Oversight and Investigations (the “Subcommittee”) will hold a meeting, entitled “Credit-Based Insurance Scores:  Are They Fair?,” on October 2, 2007 to discuss the growing use of credit-based insurance scores.  A credit-based insurance score is a numerical ranking based on a prospective consumer’s credit history and takes into account information about a person’s payment history, collections, credit utilization, outstanding debt and bankruptcies.  Insurance companies use credit-based insurance scores to estimate the number or total cost of insurance claims prospective insureds are likely to file.  Proponents of credit-based insurance scores argue that these scores allow insurance companies to more accurately assess insurance risk and charge lower premiums to consumers who are better risks.  Critics argue that the use of these scores have an adverse effect on members of minority groups and low-income consumers, causing them to pay higher premiums than other consumers.

As part of the October 2 hearing, the Subcommittee will hear views regarding the increase use of credit-based insurance scores and its effect on minority consumers.  The discussion will focus on a Federal Trade Commission (“FTC”) Report  to Congress, entitled “Credit-Based Insurance Scores:  Impacts on Consumers of Automobile Insurance” (the “Report”), because the Report raises serious concerns about the fairness of credit-based insurance scoring and adverse implications on members of minority groups.  In the Report, the FTC concluded that credit-based insurance scores are effective predictors of risk under automobile polices and may benefit consumers by permitting insurance companies to more accurately evaluate risk.  However, the FTC also concluded that African Americans and Hispanics tend to have lower scores than non-Hispanic whites and Asians.  According to the Report, the FTC found that the use of scores caused the average predicted risk for African Americans and Hispanics to increase by 10% and 4.2%, respectively, while the average predicted risk for non-Hispanic whites and Asians decreased by 1.6% and 4.9%, respectively.  Therefore, the FTC determined that the use of credit-based insurance scores likely leads to African Americans and Hispanics paying higher premiums on automobile insurance than non-Hispanic whites and Asians.

The Subcommittee is scheduled to meet at 2:00pm on October 2, 2007 at 2128 Rayburn House Office Building.  To view the full FTC Report, click here.