FTC Report on Credit Scores in Insurance

For anyone who missed it, the U.S. Federal Trade Commission released a report last week about the use of credit scores in the insurance industry. The report is generally favorable to the use of credit scores by insurance companies, finding credit reports “effectively predict the number of claims consumers file and the total costs of those claims.” The report also found that, although the use of credit scores were distributed differently for racial and ethnic groups, the predictive power of these scores was not a substitute for membership in these groups. In other words, the credit scores were not duplicating the status of membership in a racial or ethnic group but were capturing something else.

Katie Porter has discussed on Credit Slips the increasing number of “off-label” uses for credit scores–that is, using a credit score for something other than granting credit. Insurance pricing is one of these off-label uses, and the FTC report seems to be a big boost for that practice. Time precludes a more extended analysis here. Those interested in the issue might read the dissenting opinion of Commissioner Pamela Jones Harbour to the FTC’s report. The gist of the dissent is that it questions the methodology used in the FTC study, noting it relies primarily on industry-supplied data.