Louisiana Department of Insurance Office of Consumer Advocay
Volume 2, Issue 8
AUGUST 2011

District 97 Town Hall Meeting
8/3/2011
St. Bernard Parish Council Chambers
8201 West Judge Perez Chalmette, LA
5:30 p.m. - 8:00 p.m.

2011 Community Resource
8/6/2011
BREC's Hooper Road Park 6261 Guynell Street
Baton Rouge, LA
10:00 a.m. - 2:00 p.m.

District 97 Town Hall Meeting
8/10/2011
Fair Ground Race Course and Slots
1751 Gentilly Blvd.
B/G Room
New Orleans, LA
5:30 p.m. - 8:00 p.m.

District 97 Town Hall Meeting
8/17/2011
West Jefferson Medical Ctr. Auditorium
1101 Medical Center Blvd. Marrero, LA
5:30 p.m. - 8:00 p.m.

District 97 Town Hall Meeting
8/18/2011
Holy Cross School
Student Center Arena
5500 Paris Avenue
New Orleans, LA
5:30 p.m. - 8:00 p.m.

For speaking engagements scheduled after the release of the newsletter or for more detailed information about engagements listed in the newsletter, visit our web site at www.ldi.la.gov. Click on the Events tab found in the center of the home page.

To view previous newsletters, click on Consumer Advocacy under Consumers; then click on Consumer Advocacy Newsletters.

To find out if Consumer Advocacy will be in your area or to request a speaker for your organization or group, call (225) 219-0619 or e-mail
consumeradvocacy@ldi.la.gov

If you no longer wish to receive this newsletter please e-mail the following address with "REMOVE" in the subject line.
consumeradvocacy@ldi.la.gov

Follow the Louisiana Department of Insurance on

facebook


Credit Scoring in Personal Lines Insurance

Most consumers know that factors such as the amount of credit available, the timeliness of how you pay your creditors, bankruptcies and the number and age of open and closed accounts affect your credit score.  Credit scores determine creditworthiness and influence investment decisions of banks, lending institutions and credit card companies.  Many consumers, however, don’t realize that their credit score, along with age, address, claim history, marital status, and other factors are combined to determine an insurance score

An insurance score is a rating developed and used by insurance companies to represent the probability of a policyholder filing an insurance claim during his policy period. The insurance score leans heavily on the policyholder's credit score and impacts the premiums charged for personal lines insurance coverage.  Personal lines insurance refers to insurance for individuals and families and not for business or commercial purposes.

Insurance studies have shown that there is a positive correlation between a poor credit rating and the frequency of insurance claims. Many insurance companies and research firms say that surveys indicate that a bad credit rating means the policyholder is a high risk.  Some insurance companies believe that if an individual's credit behavior is bad, then your driving and claims reporting behavior will be also.  This topic remains quite controversial, and while consumer advocates, state legislators, and state insurance regulators may not always agree, in most states, insurance companies are allowed to include a policyholder's insurance score in their rating computations.  

It’s the decision of the insurance company whether they will use an insurance score or not. Consumers should ask their insurer if insurance scoring data was used in calculating their premiums. If the answer is yes, ask for an explanation detailing what and how the data was used. You should also contact your state regulatory agency to verify that the way in which the data was used complies with state insurance laws.

Insurance companies doing business in Louisiana have specific laws regarding how credit information can and can’t be used. For example, in Louisiana an insurer that uses credit information to underwrite or rate risk shall not

  • Use an insurance score that is calculated using income, gender, address, zip code, ethnic group, religion, marital status, or nationality of the consumer as a factor or;
  • Use certain collection accounts with a medical industry code, if so identified on the consumer’s credit report or;
  •  Base an insured's renewal rates for personal insurance solely upon credit information, without consideration of any other applicable factor independent of credit information.

These are only two of several compliance requirements for the state of Louisiana as it pertains to the use of credit information. Please contact the Louisiana Department of Insurance or refer to Louisiana Insurance Code Revised Statute 22:1504 for more details on the use of credit information in personal lines insurance rating calculations.

Rate Development in Personal Lines

Many factors are considered when insurance companies determine the rate they will charge for policy coverage.  Personal automobile, homeowners, renters and watercraft are several examples of personal lines coverage that are subject to rate approval.  The Louisiana Department of Insurance (LDI) ensures that insurance rates and premiums charged are actuarially supported, not excessive, or unfairly discriminatory.  Companies are not allowed to arbitrarily select a rate to charge consumers without first submitting a filing to the LDI.  When a company wishes to create a new product, revise, increase or decrease a rate, they must first submit a filing to the LDI for approval.  Filings that involve revising a rate that is currently charged must be accompanied by an actuarial analysis, statistical analysis, or a detailed explanation per the guidelines set forth in the Louisiana Rating and Policy Forms Handbook.  This handbook provides property and casualty insurers with the guidelines, requirements and instructions for submitting rate and rule filings to LDI.

In developing a rate, insurance companies consider the characteristics of the risk the consumer is seeking to insure as well as the characteristics of the individual seeking insurance coverage. 

Considerations regarding the risk being insured:
    ● Where is the property located?
    ● What is the fire protection class of the responding fire department?
    ● What type of policy is the consumer seeking?
    ● What materials were used in construction of the property?
    ● What is the age of the property?
    ● What is the requested coverage amount?
    ● What is the deductible on the policy?
    ● What protective devices reduce loss to the property?
    ● How much would it cost to rebuild the structure if it were totally destroyed?

Considerations regarding the individual being insured:
    ●  How old is the consumer?
    ●  What is the claims history of the consumer?
    ●  What is the consumer’s insurance score?
    ●  How many residents live in the household?
    ●  What is the consumer’s marital status?
    ●  Does the consumer have other policies with the company?

In addition to regulating and monitoring insurance rates, the LDI holds an annual filing and compliance seminar to provide companies with the necessary tools to make appropriate submissions to the LDI.  This excellent resource tool is available for all companies doing business in the state.  The 8th Annual Louisiana Filing & Compliance Seminar will take place Friday, August 12, 2011, at the Crowne Plaza in Baton Rouge, Louisiana.  Additional information may be found at http://www.ldi.state.la.us.

EDITOR’S LETTER

Credit Reports

As discussed in this issue, your financial credit history plays a very important role in your life.  As more and more insurance companies use credit in developing insurance rates, it is important to ensure that your credit record is accurate. 

Consumers should check their credit history on an annual basis to confirm completeness as well as check for errors.  The Federal Trade Commission reports that over 20 percent of all credit reports may have mistakes in them.  It’s easy to see how some of these mistakes could happen. One person with a bad credit rating may have the same name as another who has a good rating. Or a family member, business associate or former spouse may make a bad financial decision that implicated you when you didn’t do anything wrong.

How long has it been since you called your local credit bureau to ask for a copy of your credit report?  If it has been more than a year, it has been too long.  It’s too late to check your credit history when you apply for a loan or an insurance policy that you need right away. You may discover that you can’t complete the transaction because there is a mix-up in your credit history.  It can take you weeks, even months, to get the matter straightened out.

There are many services that can provide you with your credit history information.  These services provide information gathered from nationwide consumer credit reporting agencies. Some providers supply the information free of charge while others charge a service fee.  The top three nationwide credit reporting agencies have set up one Web site and a toll-free telephone number through which you can order a free annual report. To order, visit annualcreditreport.com or call 1-877-322-8228. 

Equifax
P.O. Box 740256
Atlanta, Georgia 30374
1-800-685-1111
www.equifax.com

Experian
P.O. Box 9554
Allen, Texas 75013
1-888-397-3742
www.experian.com

TransUnion
P.O. Box 6790
Fullerton, CA 92834
1-800-916-8800
www.transunion.com

Deputy Commissioner
Clarissa A. Preston, CIC, APIR

 

 

Office of Consumer AdvocacyP.O. Box 94214Baton Rouge, LA 70804-9214
(225) 219-0619 or (800)259-5300www.ldi.la.govconsumeradvocacy@ldi.la.gov