Naked City

Outgoing Texas Department of Insurance Commissioner Jose Montemayor last week told Gov. Rick Perry that he thinks insurers should be allowed to continue using credit scoring to determine risk and insurance premiums, despite mounting pressure from some lawmakers and consumer advocates who argue that the practice disproportionately impacts lower-income and minority Texans. Although the use of credit scoring may have a "disproportionate impact" on some groups, the practice does have an "actuarially supported result" and as such is "not unfairly or intentionally discriminatory," Montemayor wrote in a Jan. 31 letter to Perry, Lt. Gov. David Dewhurst, and House Speaker Tom Craddick. As TDI commissioner, Montemayor has the authority to end practices that are intentionally discriminatory, but not those that are merely disproportionate in impact, he wrote. Credit scoring "is not unfairly discriminatory as defined in current law because credit scoring is not based on race, nor is it a precise indicator of one's race," he wrote. Ending the practice without a corresponding change in law would likely lead to a prolonged court battle, he wrote, "further frustrating public expectation," and would also likely lead to increased insurance premiums for most policyholders.

Not surprisingly, the industry lobby group Texas Coalition for Affordable Insurance Solutions praised Montemayor's grasp of the situation. "TCAIS and many others have long known that Texas consumers benefit from credit-based insurance scoring because most policyholders pay less when insurance scoring is used," TCAIS Executive Director Beaman Floyd wrote in a press release. "Risk-based rating … must be part of a fair and accurate system so that low risk consumers are not forced to subsidize higher risk consumers."

Montemayor's recommendation did not impress Sen. Rodney Ellis, D-Houston, who is part of a bipartisan effort to end credit scoring in determining premiums. Ellis points out that the TDI study of the issue, which was released in December, revealed that African-Americans have credit scores 10 to 35% lower than white consumers, and Hispanics have scores between 5 and 25% lower than the scores of white consumers. Credit scoring also penalizes lower-income Texans – while those consumers may have trouble paying bills, it doesn't mean they're more likely to file an insurance claim, Ellis and other lawmakers said in a press conference last month. "Do tornadoes avoid people with good credit scores?" Ellis asked. "Are African-Americans and Hispanics … far more likely to be bad drivers? If the answer is no, then why is credit scoring legal?" Indeed, the credit scores assigned consumers are often unreliable, pointed out Fort Worth Republican Rep. Charlie Geren, who said he'd personally been denied a policy not because his score was poor, but because (due to several major transactions) his credit file had been checked four times in one year.

So far three legislators – Rep. Fred Brown, R-College Station (HB 23); Rep. Garnett Coleman, D-Houston (HB 792); and Sen. Ellis (SB 167) – have filed bills that would ban the practice. One lawmaker, Rep. Dennis Bonnen, R-Angleton, has filed legislation that would restrict the use of credit scoring and would require insurers to review scores and make the necessary premium adjustments when writing policy renewals.