<p>WEST PALM BEACH, Fla. – The latest controversy striking the insurance industry is the legitimacy of the increased use of credit scores. Recently Allstate Insurance Company stated that it will stop writing homeowners insurance policies for new customers in Texas who fall in the lowest three tiers of its five-point credit-scoring system. In addition, existing customers with lower credit scores are eligible for homeowners insurance only if they have not filed a claim in the past three years. "We are not shutting off the valve," said Allstate spokesperson Michael Trevino. "We are being more careful with the new business we take on. This is about managing growth in a prudent fashion and it doesn't make sense for us to take on new business on an inadequate rate." According to a 2001 survey conducted by insurance consulting firm Conning &Co., in the past three years more than 90% of insurers use credit scores as a factor in determining rates. So far this year 28 states have considered legislation and seven have passed bills limiting its use. Consumer groups across the country say credit scoring is discriminatory. In Texas a class action lawsuit has been filed alleging that it is similar to redlining, which has been banned. In Missouri, HB 1502/1821 is expected to be signed by Governor Bob Holden and will be effective July 1, 2003. The bill provides that insurers cannot take adverse action against an applicant or policyholder in the following circumstances: Using credit information as the sole factor in underwriting. Based on credit information contained in a credit report that the insurer knows is in dispute. Using credit information in renewing a contract until at least three years after the policy was issued. In addition, an insurer cannot use the number of insurance inquiries that an applicant makes as a negative factor in evaluating the application. Meanwhile in Michigan, the debate has become so heated that it will now shift from the legislature to a series of public hearings being held in June and July by the Office of Financial and Insurance Services. The Michigan House Insurance and Financial Services Committee has postponed further consideration of House Bill 5882, which prohibits an insurer from establishing or maintaining a premium discount plan based on credit information. So what has consumer groups and advocates fired up? "If someone is having accidents and tickets, it's logical to expect they'll have future accidents. People understand that," said Consumer Federation of America Director of Insurance J. Robert Hunter. "People don't understand if they got laid off as a result of 9/11 that they suddenly are going to be a worse driver because they are having a little more trouble paying their bills. There's no logical connection." Insurers insist that insurance scoring is more objective and effective than the traditional methods underwriters use to determine risk and is a reliable predictor of whether someone will be a high or low insurance risk. In fact, insurers are quick to point out that many consumers with good credit ratings benefit from discount programs related to insurance scoring. "It's an incredibly accurate predictor of future loss," said Joseph Annotti, assistant vice president of public affairs for the National Association of Independent Insurers. "People who engage in higher-risk behavior with their finances are more likely or more willing to exhibit the same kind of behavior in the rest of their lives-for example driving." According to Hunter, there's no proof that most consumers are benefiting from insurance scoring or that there is a statistical correlation between credit and risk, because the industry won't share its data for independent analysis and public scrutiny. "Insurers all say 60% of policyholders are getting a lower rate, but there's no proof of that," said Hunter. "The average rate is going up fairly steeply. So where's the benefit? Why doesn't it show up in the averages?" The growing consumer complaints and pending legislation have pushed the insurance industry to start beefing up its consumer education efforts. In Florida, the Department of Insurance has made available a brochure entitled What Florida Consumers Should Know About Credit Reports, Credit Scores and Insurance Scores that outlines how the credit scoring practice works. "Dispelling misconceptions about insurance scoring and highlighting consumer benefits will be the insurance industry's primary objectives during the public hearings (in Michigan)," said Laura Kotelman, counsel for the National Association of Independent Insurers. Most recently Fair, Isaac and Equifax have added a new feature to its Score PowerT, which includes a consumer's FICO score and an Equifax credit report, to help demystify credit scores for consumers. The new tool allows consumers to simulate their personal FICO score – the three-digit credit score used by a majority of lenders to make credit decisions. Using the FICO Score Simulator, consumers can quickly understand how specific financial actions might impact their FICO score over time if other factors stay the same. By changing one factor at a time such as paying bills in a more timely fashion or opening a new credit card account, individuals can create any number of "what if" scenarios to help them decide what specific changes to make to their credit practices. In addition, the score analysis report includes multiple click-through links to the consumer's Equifax Credit Profile, enabling each consumer to view directly the underlying detail in his or her credit report. This direct link to the credit report helps consumers understand how specific factors have influenced their FICO score. [email protected]</p>