Credit Scoring and Insurance
Insurance companies may consider your credit information to make decisions about whether to insure you and what rates to charge. A company can't refuse to sell you a policy or cancel or non-renew your policy solely based on your credit.
What Is An Insurance Credit Score?
An insurance credit score is derived from your credit history. Companies use the scores, along with other factors, to estimate the risk of having you as a policyholder and to decide if it will sell you a policy and at what cost. 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).
Senate Bill 14, passed in 2003, made provisions for the use of credit information by the insurance industry but mandated that the Texas Insurance Commissioner regulate its use. The Texas Department of Insurance 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.
Companies That Use Credit Scoring
Credit Scoring Exceptions
If a negative event in your life has hurt your credit score, insurance companies must give you a reasonable exception so that the event won’t have an effect on your insurance rates or coverage. Insurance companies may require documentation of the event before providing an exception.
Examples of negative events include:
- a catastrophic illness or injury;
- the death of a spouse, child, or parent;
- temporary loss of employment;
- identity theft; and
- other events the insurance company accepts.
To ask for an exception, you must send a written request to the insurance company. An insurance company isn't required to consider repeated events.
After the insurance company receives your request and any necessary documentation, it may consider only credit information not affected by the event or it must assign a neutral credit score.
This applies to insurance companies that sell:
- personal auto insurance,
- residential property insurance,
- residential fire and allied lines, and
- noncommercial insurance for a boat, personal watercraft, snowmobile, or recreational vehicle.
If you think your insurance company has denied you coverage or charged you a higher rate because your credit score was hurt by a negative event, you may ask the insurance company in writing for an exception. You may also file a complaint if you think an insurance company has failed to make reasonable exceptions as required by the Texas Insurance Code. You may file a complaint with TDI. For more information about filing a complaint, visit www.tdi.texas.gov/consumer/complfrm.html.
Insurance companies operating in Texas are 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. 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 can't be the only factor used in an insurance company'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.
- More information about how companies use credit scoring
- TDI credit scoring study
- How to dispute credit report errors (Federal Trade Commission)
- Consumer Bill of Rights for Credit Life, Credit Disability, and Involuntary Unemployment Insurance (English | Spanish)
- Rules and statutes governing insurance companies' use of credit scoring: Insurance Code Chapter 559 and 28 TAC Chapter 5, Subchapter U
For more information, contact:
Last updated: 01/13/2016