Delaware Senate Bill 31
Myths & Facts

Myth: Most consumers get “discounts” when insurance companies use credit data to make decisions
about insurance policies.

Fact: When credit scoring is used, even those receiving so-called “discounts” can pay more. For
example, when Farmers Insurance Company began using credit scoring to rate and underwrite policies
in Ohio, the company reported that 94 percent of its policyholders received a discount.

But in reality, 50 percent or fewer actually received a reduction in discounts. That’s because when
Farmers started using credit scoring it also raised the base rates for 49.2% of its customers.
Approximately 50.8 percent of its customers had their base rates decreased. After the base rates were
raised, policyholders receiving a 40% credit scoring “discount” were still paying 20.3% more in
premiums after credit scoring was used. A policyholder had to qualify for a minimum of a 60% credit
score “discount” before actually paying less than they did before the insurer began to use credit
scoring. This scenario is fairly typical of what happens when insurers using credit scoring. For many
consumers with good credit, the discount is illusory.

Those who don’t qualify for the discount are heavily penalized, especially those who are
disproportionately impacted by using credit scoring in insurance. In Ohio, after Farmers raised the
base rate to provide a credit scoring “discount,” 8.8% of the policyholders experienced a 100.5%
increase in their rates; 13.7 % had a 50.4% rate increase, and; 26.7% had their rates rise by 20.3%.
Ironically, this later group experienced a significant rate increase while receiving a 40% credit scoring
so-called “discount.”

Fro more click here (PDF format only)