MISSOURI REGULATOR CONCLUDES CREDIT SCORING HURTS MINORITIES.

Releasing a Missouri Department of Insurance report that concludes insurers' use of credit scoring harms low-income and minority policyholders, Gov. Bob Holden called on the legislature Jan. 29 to pass legislation protecting consumers against abuses.

Insurers hotly contested the findings. They say credit scores are an accurate predictor of claims experience, allowing more people to buy insurance at lower cost.

The study, Insurance-Based Credit Scores: Impact on Low Income and Minority Populations in Missouri, was carried out by a DOI research statistician who took data provided by the top 20 homeowner and auto insurers in the state, broken down by ZIP codes.

"Minorities" were defined as those who identified themselves as African American or Hispanic in the 2000 census.

"The insurance credit-scoring system produces significantly worse scores for residents of high-minority ZIP Codes," wrote the author, Brent Stabler.

"The average credit score rank in 'all minority' neighborhoods areas stood at 18.4 (of a possible 100) compared to 57.3 in 'no minority' neighborhoods - a gap of 36.9 points," he said.

He said the system "produces significantly worse scores" for residents of low-income ZIP codes, too - a gap of 12.8 percentiles between them an the wealthiest neighborhoods.

"Findings - consistent across all companies and every statistical test - indicate that credit scores are significantly correlated with minority status and income, as well as a host of other socio-economic characteristics, the most prominent of which are age, marital status and educational attainment."

The National Association of Mutual Insurance Companies challenged the methodology.

Using ZIP codes can be misleading because the areas are too large and insurance is sold to individuals, not groups in particular areas, said Joe Thesing, NAMIC state affairs manager for Missouri.

Nor does the study take account of who actually buys insurance, he said. Urban residents may not buy homeowner or auto insurance because they rent their homes and take public transportation, he said.

The DOI study is available on the Internet at http://insurance.mo.gov/reports/credscore.pdf.