Credit Scores: Credit-Based Insurance Scores Page: 1 of 6
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Order Code RS21341
Updated January 19, 2005
CR8 Report for Congress
Received through the CRS Web
Credit-Based Insurance Scores
Analyst in Economics
Government and Finance Division
An insurance score, a type of credit score, is a number produced by a computer
scoring model that analyzes a person's credit information (i.e., payment history,
collections, balances, and bankruptcies) obtained principally from that person's credit
reports. Increasingly, insurers have been using insurance scores as an underwriting
factor to evaluate insurance applications, especially for automobile and homeowners
insurance, in predicting possible future insurance claims an applicant might generate.
Insurers maintain that there is a clear statistical connection between a person's insurance
score and the likelihood of that person filing claims, as well as how expensive such
claims might be. By using insurance scores, insurers say that they are able to charge
lower premiums to most customers who are better risks. On the other hand, some
consumer advocates dispute the insurers' position and argue that the use of insurance
scores has a disparate effect on minorities, and is merely a new method by which
insurers can increase premium rates.
Even though credit scores have been widely used for some time by credit-related
businesses such as home mortgage lenders and credit card issuers, the use of insurance
scores by insurers is relatively new. The growing discontent regarding the use of credit-
based scoring has been reflected in proposed legislation amending the Fair Credit
Reporting Act to require additional consumer protections, and in increased litigation.
Insurance scores, like other credit scores based on credit reports, are regulated to some
degree at the federal level. Unlike other credit scores, however, insurance scores used
in the underwriting process are also subject to state insurance laws and regulations.
Most of the states have been active in recently reviewing their laws and regulations in
this area. Federal legislation in the 108th Congress that would have affected insurance
scoring included H.R. 1473, H.R. 2796, H.R. 2622, and S. 1753. The latter two were the
House and Senate versions of what would become P.L. 108-159, which mandated a
study on the impact of insurance scoring. This report will be updated in the event of
significant legislative or regulatory developments.
Congressional Research Service V The Library of Congress
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Credit Scores: Credit-Based Insurance Scores, report, January 19, 2005; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc817578/m1/1/: accessed November 17, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.