Statement on the Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance

Rep. Maxine Waters [D-CA]: Thank you, Mr. Chairman for convening this second hearing on the impact of credit-based insurance scoring on the availability and affordability of insurance. The first hearing you held on this topic last October was very enlightening, but also troubling. In fact, I was sufficiently disturbed by some of the testimony that I introduced a bill with Mr. Gutierrez—H.R. 6062, the Personal Lines of Insurance Fairness Act of 2008—to ban the practice of using credit scores in the underwriting or rating of insurance premiums.
 
 I am looking forward to hearing our witnesses' testimony on this topic, but I must say that the findings from the first hearing deeply concerned me. That hearing covered a report released in July 2007 by the Federal Trade Commission. The report found that credit-based insurance scores, which are developed and used by the insurance industry, serve as a proxy for race in three out of four lines of automobile insurance. Specifically, the report found that when credit-based insurance scores are used to predict claims risk, the predicted risk of African-Americans and Hispanics increases by 10 percent and 4.2 percent, respectively. Conversely, the predicted risk for Whites decreases by 1.6 percent.
 
 To address the proxy issue, Mr. Gutierrez and Mr. Watt introduced legislation that would prohibit the use of credit scores for insurance underwriting when a proxy effect is found. However, I must disagree with this approach. While we must do something to address the disproportionate racial impact of this practice, I am also concerned about the overall fairness of this practice.

 Specifically, credit scores have little if no bearing on how likely a person is to have a car accident, to break speed limits, or to otherwise engage in risky driving behavior that could result in an insurance claim. I know that the industry maintains that there is a slight correlation between low credit scores and increased claims risk. However, a correlation does not imply causation. I wonder if we would permit other possible correlations, no matter how unrelated to claims risk, to be used to set insurance premiums. For example, if researchers found that there was a correlation between Zodiac signs and increased claims risk, would it be appropriate to allow such a correlation to be used as a metric for setting insurance premiums?

 To make someone pay more for insurance because of a situation in their financial circumstances that has nothing to do with their risk as a poor driver or irresponsible homeowner, is simply unfair. It is unfair to recent immigrants, to the elderly, and to low-income Americans, all of whom may have little credit history. Furthermore, it is unfair to those Americans who have been hit by the foreclosure crisis and are now struggling to rebuild or reestablish their credit.

 Traditional underwriting standards worked with little problem for several decades before insurance companies began using them for underwriting purposes. I am interested to hear our witnesses explain why these standards were abandoned and how they continue to justify the use of credit scores for underwriting given the concerns I have raised.

 Thank you, Mr. Chairman. I yield back the balance of my time.

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