Committee questions insurance and credit link

A proposal to ban the use of insurance credit scoring systems to set premiums and deny, approve or continue insurance coverage drew support from a key committee on Wednesday.

Assemblyman Paul Aizley, D-Las Vegas, the sponsor of Assembly Bill 162, received support from members of the Assembly Commerce and Labor Committee during a hearing.

Committee members expressed concern that low-income residents and minorities may be getting lower scores than the population in general. Lower scores could result in higher premiums or being denied auto and homeowner insurance, Aizley said.

Aizley, a former math professor at the University of Nevada, Las Vegas, argued that credit scores, based on a personal payment history on loans, don't affect the way individuals drive or their likelihood to have accidents. Nor does it affect the possibility of a claim for damage on a home, he said.

Assemblywoman Maggie Carlton, D-Las Vegas, read part of a Federal Trade Commission study that indicated that insurance credit scoring tended to hurt Hispanics and African-Americans more than other ethnic groups.

Eric Rosenberg, a representative of TransUnion, which compiles data for credit scores, said the FTC found that race and income aren't proxies for scoring.

Committee Chairman Kelvin Atkinson, D-North Las Vegas, said, "I'm suggesting that the method itself is indirectly discriminatory."

Assemblywoman Marilyn Kirkpatrick, D-North Las Vegas, said credit scoring is creating a particular hardship on Nevadans who have lost their jobs and homes during the recession.

She questioned whether use of data about her payment and credit history show whether she is a good risk for insurance.

"How does your data say what kind of person I am?" Kirkpatrick said.

Rosenberg said insurance credit scoring ranks her on the basis of risk so that an insurance company can make a decision about giving her insurance and setting the premium.

The models predict frequency and severity of losses covered by insurance, he said.

Rosenberg said insurance credit ratings have helped insurance companies offer coverage in underserved areas.

Ed Rathje, a retired engineer who worked with the first Air Force spy satellite and other space programs, criticized insurance credit scoring for being arbitrary and set in secret. He said he was paying $70 more monthly a few years ago because a credit report said a loan was still open, although it also said he made all payments.

"The problem is insurance scoring is not transparent," like other credit scores used for making loans, he said.

Rosenberg said insurance scoring systems at TransUnion are transparent to consumers.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.