Insurance Department Releases Results of Survey on Insurers' Use of Credit

Springfield, IL - Illinois Director of Insurance Nat Shapo today released the results of a survey on the use of consumers' credit histories by the Illinois property and casualty insurance industry. Due to public concern about this practice, the survey was sent in April 2001 to all Illinois personal lines auto and homeowners insurers to determine whether they are using credit information to underwrite and/or rate policies, and if so, to what extent.

"The insurance industry's use of credit information in making underwriting and rating decisions is generating increased public awareness and interest," Shapo said. "We conducted this survey as a fact-finding exercise to gain a better understanding of the role of credit in the Illinois insurance market. The survey looked at several areas relating to use of credit, including number of companies using it, how they are using it, and whether and how they are disclosing its use to consumers."

The survey results show aggregate information only. Company-specific information is subject to the confidentiality provisions of the Illinois Insurance Code and will not be released.

Current Illinois law (PA 92-480, effective October 1, 2001) prohibits insurance companies from refusing to issue a new policy or from nonrenewing an existing auto or homeowners policy solely due to a credit report.

Shapo said the Department of Insurance has presented the results objectively, without making any specific policy recommendations. "Illinois has developed a healthy market-oriented approach toward underwriting and rating insurance products. This survey will likely stimulate further discussion among elected policymakers, regulators, industry representatives, and consumer groups in evaluating whether current uses of credit are consistent with fostering a competitive marketplace that serves the interests of informed consumers."

• 205 auto insurance companies (representing 68 percent of the total Illinois personal lines auto market share) and 172 homeowners insurance companies (representing 79 percent of the total Illinois homeowners market share) indicated that they used credit or planned to use it within 12 months from the date of the survey;

• 154 of the 205 auto companies and 138 of the172 homeowners companies that use credit, order credit information on all applicants;

• 164 auto insurers (comprising 61 percent of the total personal lines auto market) use credit information to rate policies; of those, 112 (comprising 54 percent of the total auto market) charge a higher rate for the consumer with the worst credit; and 67 (representing 14 percent of the total auto market) periodically re-evaluate the insured's credit information;

• 102 homeowners insurers (comprising 29 percent of the total homeowners market) use credit information to rate a policy; of those, 65 (comprising 19 percent of the total homeowners market) charge a higher rate for the consumer with the worst credit; and 54 (representing 15 percent of the total homeowners market) periodically re-evaluate the insured's credit information.

"The growing use of credit information by insurance companies poses new questions for consumers to consider in shopping for auto and homeowners insurance," Shapo said, offering the following advice:

• Become an informed consumer. Consumers can access a detailed fact sheet entitled "Understanding How Insurers Use Credit Information" on the Department's website.

• Compare coverage and rates with several insurance companies.

• Ask agents or company representatives whether their company uses credit information and, if so, how.

• Carefully review your personal credit information with each of the three major credit reporting agencies and take the steps necessary to correct mistakes. Don't assume that correcting an error with one credit reporting agency automatically corrects it with another.

• If you find errors in your credit information, ask your agent or company representative whether the corrected information will lower your rate.

The three credit reporting agencies commonly used by insurance companies are:

• Equifax (www.credit.equifax.com or 800-685-1111);

• Experian (www.experian.com or 888-397-3742); and

• Trans Union (www.transunion.com or 800-888-4213).