Oklahoma City, OK 73105
For Immediate Release: October 19, 2016
Lawmakers listened to testimony Tuesday during a joint study on
the use of a person’s credit
information and buying habits in setting car insurance rates.
Joint legislative study looks at the use of credit scores
in setting car insurance premiums
Lawmakers heard testimony from members of the insurance
industry, consumer advocacy organizations and citizens Tuesday as
they examined an issue many Oklahomans may not be aware of—how
insurance companies use credit scores and other financial information,
including buying habits, to decide a policy holder’s car insurance
The study was requested by Sen. Rob
Standridge and Rep. Bobby Cleveland. Standridge said Oklahoma
has the highest percentage of uninsured drivers in the nation. Even
though Oklahoma’s cost of living is among the lowest in the
nation, car insurance rates are among the highest. Standridge said
after Consumer Reports magazine did a 2015 article about the use
of credit information in setting insurance rates, he was approached
by people in the insurance business and customers who were concerned
about the practice and how that impacted the cost.
Joe Woods from Property Casualty Insurers was among those testifying
at the hearing. He told lawmakers that several studies have shown
that an individual’s credit history is a proven, accurate
indicator of how likely that person is to file a future claim and
the potential cost of the claim. He said the way people manage their
credit reflects how likely they are to behave in other aspects of
their lives. By using the scores, companies can better match the
risk of loss with premiums. He pointed to numerous studies, including
one by the University of Texas which affirmed the use of credit
“They also found that credit based prediction is more predictive
than even driving record. It is one of the top three to five predictors
of risk that an insurer can use,” Woods said.
Woods also pointed to Arkansas which has been collecting data since
the mid 2000’s on the use of credit for determining insurance
scoring. A 2015 report by their state’s insurance department
said that 79.4 percent of consumers either received a discount for
credit or it had no effect on their premium.
Charles Bell, Programs Director for Consumers Unions, the advocacy
and policy division of Consumer Reports, gave legislators a different
perspective on the issue. He said at the national level, Consumer
Reports found that single drivers paid a median of $190 more for
merely having good credit, compared to consumers with the best credit.
Those with “poor” credit paid $1,200 more. In Oklahoma,
the top insurers report an average rate of $3,872 for auto coverage
for consumers with a clean driving record and poor credit compared
to an average rate of $2,198 for drivers with a drunken driving
conviction and excellent credit.
“We believe it is patently unfair and unwise to let convicted
drunk drivers pay less for their auto insurance than an excellent
driver with poor credit,” Bell said.
Lawmakers heard that the credit score insurance companies use are
not the same thing as a FICO credit score, and that different insurance
companies may use different formulas for determining a customer’s
score. Standridge said simply having certain kinds of credit cards,
like department store cards, can lower a person’s insurance
score, noting most consumers would be surprised to learn something
like that can impact their insurance rates. He pointed to the case
of a Moore tornado survivor who saw his rates skyrocket after taking
out department store credit cards to replace items that were destroyed.
He was told those credit cards were the reason for the increase.
Standridge said insurance companies are authorized by state law
to use credit information in setting rates, but questions whether
some may give more weight to that than the number of tickets or
accidents a driver has had.
“It’s causing people with bad credit scores but excellent
driving records to wind up paying more for insurance than someone
with a DUI who has excellent credit,” said Standridge, R-Norman.
“We heard from one gentleman today who used cash for everything
for years, but was shocked when his car insurance rates suddenly
jumped 28 percent in one year. He was told it was because he didn’t
use credit cards and that had adversely affected his credit score.
That doesn’t seem right.”
He said he was also concerned about the use of something referred
to as “price optimization.” Insurance companies can
obtain data indicating if a person routinely shops for the best
price before making a purchase or is willing to change a service
provider for phones or TV to get a lower price. If not, the insurance
company may charge that person a higher price because their consumer
data indicates they’ll simply pay it.
“I think that’s not a very good practice in a regulated
industry like that. Obviously if you go to a retail store and you
are willing to pay more, that’s one thing, but they likely
have no idea how their purchasing history may impact their insurance
Cleveland said before the study took place, he talked to hundreds
of Oklahomans about the fact that insurance companies can use credit
information to set car insurance rates.
“Not one person knew or was aware of that and high income
or low income, all thought it was unfair,” said Cleveland,
R-Norman. “I’m not ready to throw it out, but I think
it could use some tweaking.”
Cleveland said it was important to make sure people with low incomes
aren’t taken advantage of. He said he would like to know how
much weight was given to a person’s credit in setting rates.
Standridge said at the least there should
be more transparency in how rates are set. He said he would continue
to gather information and possibly work with the Oklahoma Insurance
Department to look at possible changes to improve the process.
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