Insurance Credit Scoring

Senate Bill 14 (78th Texas Legislature, Regular Session, 2003) made provisions for the use of credit information by the insurance industry but mandated that the Texas Insurance Commissioner regulate its use. In November 2003, the Texas Department of Insurance (TDI) adopted initial rules regarding the use of credit information by insurers in Texas. These rules, along with the statutory provisions in SB 14, are among the strongest in the country regulating the use of credit information.

What Is An Insurance Credit Score?

An insurance credit score is the result of a calculation involving portions of your credit history. This score is then used with other factors to estimate risk in having you as a policyholder. This process leads to the final price for the insurance or deciding whether to issue a policy in the first place.

In simplified terms, insurance credit scoring accounts for the tendency of groups of people to be prone to risk, or making claims (similar to how the age of youthful drivers is an indicator of risk for more accidents, and therefore more claims).

Consumer Protections

Insurance companies operating in Texas will no longer be allowed to use credit information as aggressively as they have in the past. Insurance reforms adopted in 2003 include provisions that limit the use and application of credit information. Under new insurance rules that took effect January 1, 2004, companies using credit information must provide a disclosure statement to the consumer once an insurance application is received. The disclosure notifies potential policyholders if credit information will be used in rate setting and describes the consumer's rights and protections.

Some examples of the consumer rights and protections include:

• Credit information cannot be the only factor used in an insurer's decision-making process.
• Companies that use credit history as part of their underwriting process must disclose how they use the information by filing their insurance credit scoring models with TDI. These filings must be actuarially justified.
• If a consumer uses cash and has little credit history, the consumer will be notified that the absence of a credit history may not be used as a reason to charge higher premiums. Similar protections are included for people with past-due medical collection accounts and extraordinary life events.
• A consumer must be provided the right to appeal a ruling that results in higher rates or other adverse actions.
• The company must provide consumers a contact telephone number to call when disputing inaccurate or prohibited information. TDI also provides a toll-free (Consumer Help Line) number for consumers wanting to file a complaint about the use of credit information: 1-800-252-3439.

The disclosure form also identifies each of the statutory prohibitions contained in SB 14.

Regulation of insurance credit scoring is a new development, and TDI is dedicated to continuous monitoring and revision of rules as more information becomes available. Further, if any violations are reported to the Department, inquiries will be made with enforcement actions taken where warranted.

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  Credit Information Resource Page

For more information contact: PIO@tdi.state.tx.us