A recent news report indicates that several Massachusetts insurance companies are using consumers' credit scores -- the numerical grade of their credit reports -- to underwrite homeowners' insurance policies. Underwriting is the process insurance companies use to decide whether they will offer or renew a consumer's insurance coverage. This use of insurance credit scoring is unfair and potentially a violation of state law. We are calling on the Commissioner of Insurance and the Attorney General to investigate this practice.

Underwriting decisions can have a direct effect on insurance rates. Many insurers have multiple, affiliated companies that offer insurance coverage. If an insurer uses a consumer's credit information for underwriting purposes, then the insurer could turn down a consumer for coverage in one of its affiliates and refer the consumer to a separate affiliate that charges higher rates. This is a backdoor way of using credit information to determine consumers' rates.

Insurers may not use consumers' credit information to set rates. Massachusetts law requires that insurance rates not be excessive, inadequate, or unfairly discriminatory. Since several studies indicate that insurance credit scoring may correlate with race and serve as proxy for other risk factors already considered by insurers, the use of credit information could produce excessive and unfairly discriminatory rates. The State should investigate how insurers' use of credit information for underwriting may be causing excessive or unfairly discriminatory rates.

The State also should investigate whether this practice violates the Massachusetts Anti-Redlining Act of 1996. That statute expressly prohibits insurers from using race, color, age, and the receipt of public assistance as factors when underwriting homeowners' insurance. Studies suggest that insurance credit scoring has a disparate impact on young, low-income, and minority consumers, and we ask the AG and the Division to investigate whether the factors used in insurers' secret credit scoring models serve as a proxy for these prohibited underwriting factors.

Insurance credit scoring is an unreliable and unfair method of underwriting and pricing insurance. A consumer's credit score can vary widely depending on such random factors as which of the three major credit bureaus was used to compute the score, and whether he or she recently refinanced a mortgage or switched credit cards to get a lower rate. In addition, credit reports are riddled with errors, and consumers face significant problems getting credit bureaus to remove inaccurate information.

We are pleased that the Attorney General has opposed the use of insurance credit scoring for rating purposes and that the Insurance Commissioner has withdrawn a regulation that would have allowed such a practice. We now call on them to protect Massachusetts consumers from insurers that are using it to deny or cancel insurance coverage.