The Federal Trade Commission today released a report presenting the results of a study concerning credit-based insurance scores and automobile insurance. The study found that these scores are effective predictors of the claims that consumers will file. It also determined that, as a group, African-Americans and Hispanics tend to have lower scores than non-Hispanic whites and Asians. Therefore, the use of scores likely leads to African-Americans and Hispanics paying relatively more for automobile insurance than non-Hispanic whites and Asians.
Credit-based insurance scores are calculated based on a consumer’s credit history information. Insurance companies use them to predict the claims that consumers are likely to file, and to determine the premiums they are charged.
As directed by the Fair and Accurate Credit Transactions Act, the Commission evaluated how scores are developed and used; and, in the context of automobile insurance, the relationship between scores and risk and the possible causes of the relationship; the effect of scores on the price and availability of insurance; the impact of scores on racial and ethnic minority groups and on income groups; and whether other scoring models could be created that predict risk as well as current models and narrow the differences in scores among racial, ethnic, and other groups of consumers.
In its evaluation, the Commission considered prior research, nearly 200 comments submitted in response to requests for the public’s views, discussions with interested parties, and its own research using an extensive database of automobile insurance policies and other information about consumers. Among the study’s findings are the following:
The Commission vote to issue the report was 4-1, with a statement by Chairman Deborah Platt Majoras, Commissioner William E. Kovacic, and Commissioner J. Thomas Rosch, a concurring statement by Commissioner Jon Leibowitz, and a dissenting statement by Commissioner Pamela Jones Harbour.
Copies of the report are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.shtm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad.