TDI Begins Credit Scoring Review Process

The Texas Department of Insurance announced it has begun a review process to determine the accuracy of and need for the use of insurance credit scoring as an insurance pricing tool.

All Texas insurers who use credit scoring in their underwriting practices were required to file their models with TDI in September 2003. Since that time, TDI staff have been reviewing those models to determine if they are in compliance with Senate Bill 14 and, ultimately, based on sound actuarial practices. Insurers are being required to prove that every percentage point of rate differential they intend to use is based on actual losses.

“Insurance companies that cannot prove that their models or data accurately reflect their risks will not be allowed to use credit scoring,” said Insurance Commissioner Jose Montemayor. “TDI will begin the examination of credit scoring from the bottom up. Beginning on January 14, 2004, I will not concede a single percentage point to insurers unless they can prove it.”

On Oct. 22, TDI will conduct a public hearing on proposed credit scoring rules to obtain input from consumer and industry experts, as well as the general public.

TDI is also issuing a Request For Information (RFI) as it designs a study to look at the impact credit scoring has on any class of individuals, including classes based on income and ethnicity. The information that is obtained in the study will also be examined to determine whether there is a correct application of insurance scores and losses in the existing credit scoring models used by insurers.

TDI will also review the underlying data that is entered into credit scoring models to determine whether the data provided by companies in justification of credit scoring models is valid. The results and analyses of these studies will be provided in reports which will be public information.

“At the end of this process, I can assure you that Texans will have sound pricing that leads to more stable and fair rates,” Montemayor said.