Insurers Seek Balanced Approach to Texas Scoring, Territorial Rating Rules

At the recent Texas Department of Insurance (TDI) hearing on insurance scoring and territorial rating rules, insurers expressed their support for proposals they believe will ensure consumers are charged premiums that reflect their risk characteristics, according to the National Association of Independent Insurers.

“The rules as currently proposed represent a well reasoned approach to regulation of the insurance industry in these areas,” said Donald Hanson, NAII southwestern regional manager. “Both insurance scores and territorial rating are based on the bedrock principles of risk-based pricing and fairness. Rates should be based on the risk exposure. Consumers that pose greater risk of loss should pay a higher premium than other consumers. This approach prevents low-risk consumers from being forced to unfairly subsidize high-risk consumers. Insurance scores and territorial rating are effective tools for accomplishing the commissioner’s goal of sound pricing that leads to more stable and fair rates.”

All Texas insurers who use insurance scoring in their underwriting practices were required to file their models with TDI in September 2003. The department has been reviewing those models to determine if they are in compliance with Senate Bill 14 and, ultimately, based on sound actuarial practices.

“We welcome a fair and balanced review of credit-based insurance scoring. Numerous studies including one done by the University of Texas for the Texas Legislature as well as the real world experience of insurance companies have proven that insurance scores are an accurate predictor of a consumers likelihood to file future claims. Insurance scoring is based on the sound actuarial principle of classifying consumers into groups that statistically have a similar chance of loss. With the consumer safeguards built into SB 14, insurance scoring will continue to benefit most consumers with fair and accurately priced insurance,” Hansen said.