For too many families, it means a struggle to make ends meet.  Texans want safe, stable jobs with decent wages and reasonable benefits that allow them to raise a family, own a home, and save for a comfortable retirement.  Much has been made lately about job growth in Texas.  Unfortunately, for middle class Texans, the so-called “Texas Miracle” has been more myth than reality.  So, how does Texas stack up to the rest of the nation on key quality of life indicators?

So, how about those jobs?  Texas has the highest rate of workers paid at or below the federal minimum wage and our median hourly wage is 10% lower than the national average.  We are dead last in the percent of individuals with health insurance and are near the bottom in the percent of workers with employer-based health insurance.

As for workplace safety, nine Texans die on the job every week, making Texas the deadliest state to work in, according to data from the Bureau of Labor Statistics.  As a percentage of workers, we also have the highest rate of workplace fatalities among the 10 biggest states.  Also, with a quarter of workers without workers’ compensation coverage, we are last in workers’ compensation coverage, lagging far behind the rest of the country.

And home ownership?  Texas ranks near the bottom in the rate of home ownership, a fact that is exacerbated by our low personal credit scores, and high rate of subprime mortgages.  Plus, with the highest home insurance rates in the nation, more of our money is going to pad insurance company profits.

Finally, what about that comfortable retirement?  It isn’t so comfortable.  Texas ranks near the bottom in median household net worth and in the “nest egg index” which looks at personal savings and investing behavior.  Also, nearly half of middle income Texans report having less than $5,000 in total savings – over a quarter have less than $1,000.

This stark reality is compounded by a lax regulatory climate that typically favors industry over individuals and a broken civil justice system that is too often closed to consumers, patients, and workers who face needless injury and financial devastation.  That’s right.  If you are hurt on the job, ripped off by your insurance company, or have your savings wiped out by Wall Street shenanigans, you likely won’t be able to have your day in court.

Not quite the picture of middle class bliss that many politicians and spinmeisters would have us believe.

Download a PDF of our fact sheet “Texas: Miracle or Myth?”

Texas Watch executive director Alex Winslow issued the following statement.

“Congratulations to Ms. Kitzman on her appointment.  She has a difficult job ahead of her.  Texas homeowners are looking to her to fulfill the promise of fair rates and decent coverage for all policyholders.  They also expect her to police the insurance industry and guarantee the full, fair, and prompt payment of valid claims.  We look forward to helping her achieve these goals.

“As the economy continues to struggle, homeowners are facing ever-increasing insurance costs with dwindling protection.  They expect their insurance commissioner to look out for them by working toward a balanced insurance marketplace – not a market that is by, for, and of the insurance industry. ”

[...]

Rep. Walle also filed House Bill 194 to prohibit the use of credit scoring in the auto and homeowners insurance markets. Texans pay the highest homeowners insurance rates in the nation and the insurance companies are permitted to use an individual’s credit score to set his or her insurance rates.

Read More: Ultimate Aldine

In Texas we like being No. 1. Call us chauvinists or parochial or just downright proud, but when it comes to comparing us with the rest of the union, we darned sure want to be at the top of the list. Well, maybe not every time.

We’ve been paying among the highest homeowners insurance rates in the nation for as long as anyone can remember. A dubious distinction for sure, especially when you consider the games insurance companies are playing to deny or underpay claims and the lack of protection available in most insurance policies.

Some industry apologists want us to believe that insurance customers are better off with a system that allows insurance companies to raise rates whenever they want without getting approval from the insurance commissioner beforehand, keeps consumers in the dark about what is covered in their insurance policies, and lets insurance companies use insurance scores, data mining, and pattern recognition software instead of legitimate risk-based factors when deciding whom to cover and how much to charge.

This is hogwash. If we’ve learned anything over the last couple of years, it is that we can’t simply sit by and hope that complex financial institutions like AIG, State Farm and other insurance companies do the right thing.

The fact is that our current system of insurance regulation favors powerful insurance companies and their lobbyists over consumers and homeowners. Take State Farm. The state’s largest homeowners insurance company has tied the Texas Department of Insurance up in court for seven years over a rate that the department has found unfairly excessive. All this time, State Farm’s customers have been forced to pay a rate that state regulators believe is too high. State Farm owes its policyholders upward of $1 billion, according to the state’s public insurance counsel. Yet the company hasn’t repaid a dime because Texas has a backward system that allows insurance companies to raise rates first and justify them later.

Doesn’t it just make more sense to require insurance companies to justify their rates before they go into effect, not after? That way Texans know they are getting a fair deal.

Instead of being the state where insurance companies can raise their rates while slashing coverage, wouldn’t we all rather be known as the state with the most balanced insurance market? A state that holds fairness for insurance customers just as high as industry profits? Despite what industry lobbyists say, we can have both. Insurance companies are not charities and have every right to make a profit, but not by shortchanging their customers.

Politicians in Austin have promised to help homeowners for years now, but most of the so-called reforms they’ve passed simply benefited the insurance industry without actually lowering rates for consumers. With higher premiums, larger deductibles and expanded exclusions, Texans are paying more and more for their homeowners insurance and getting less and less in return. Why? Because insurance lobbyists have manipulated the market using all three branches of state government. They’ve succeeded in creating a loosey-goosey regulatory system by lying to the Legislature and manipulating the Insurance Department, not to mention the assist they’ve gotten from their cronies on the Texas Supreme Court who have sided with insurance interests 83.6 percent of the time.

The insurance industry’s “trust us” message just rings hollow. We’ve tried it that way; now we need to do it the right way. Maybe then we can truly lead the nation by guaranteeing real insurance protection that all Texans can afford. That would be something all Texans can really be proud of.

N. Alex Winslow is executive director of Texas Watch, a statewide citizen advocacy organization.

Read More: Fort Worth Star-Telegram

Figures provided by FICO Inc. show that 25.5 percent of consumers – nearly 43.4 million people – now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

Read More: The Dallas Morning News

The practice by insurance companies of using credit histories to set rates has been around for more than 15 years.

But now that the country is in a historic financial pit, some are asking if the practice is still valid.

As might be expected, the answer depends on whom you ask.

“All the factors in the models deteriorate because of the financial market downturn,” said Birny Birnbaum, executive director of the Council for Economic Justice, a nonprofit advocacy group for minority and low-income consumers. Birnbaum formerly was an associate commissioner for policy and research and chief economist at the Texas Department of Insurance.

The center “called for a moratorium on insurance scoring because consumers shouldn’t be penalized because of reckless spending decisions of lenders,” he said.

Read More: Atlanta Journal-Constitution

May 12, 2010

Media Contact: Douglas Rivlin (202) 225-8203
FOR IMMEDIATE RELEASE

(Washington, DC)– Today at a hearing of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, Chairman Luis V. Gutierrez (D-IL) raised issues concerning how credit scores and reports are used in a variety of ways beyond simply checking if a person is a good candidate for a loan. Practices such as checking credit ratings before a person is hired for a job or is able to obtain insurance can perpetuate a cycle of debt and could also multiply the impact of credit scoring, which many find to be discriminatory against racial and ethnic minorities and low-income individuals. The point of the hearing was to examine what additional oversight, regulation, or legislation is needed to protect consumers and ensure that the system is working for, not against, all Americans.

The following is the opening statement by Rep. Luis V. Gutierrez, Chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. A live stream/recording of the hearing, “Use of Credit Information Beyond Lending: Issues and Reform Proposals,” is available athttp://bit.ly/bd5NE0.

This morning’s hearing is about the use of credit information in areas such as insurance underwriting and employment purposes. We will hear about important yet complex and often opaque processes concerning credit based insurance and insurance scores in the first panel, and in the second panel we will hear about the equally important and –to a vast number of consumers- little known or understood uses of credit information for hiring and firing decisions, and the effect medical debt has on one’s consumer report, even after it’s paid off.

When legislators or regulators attempt to fully grasp an issue such as credit based insurance scores, they see a complex system, laden with algorithms and ever-changing computer applications and models. But it is precisely this complexity that should make us here in the Congress delve further into an issue that affects every single American who owns or rents a house, a car, has insurance, has a job or is looking for a job, or is likely to incur medical debt.

Do most consumers know that their car or homeowner’s insurance rates may go up due to their credit score? Do they know that if one of their medical bills goes to a collection agency and they pay it in full or settle it, it will still affect their credit report for up to 7 years? Do people realize that, even in these tough economic times, pre-employment consumer credit checks are increasingly widespread, trapping many people in a cycle of debt that makes it harder to pay off their debts and harder for them to get the job that would allow them to pay off their debts? Indeed, the current system facilitates the denial of employment to those who have bad debt, even though bad debt often times results from . . .the denial of employment.

That is why this subcommittee is holding this hearing, the second so far this year on the issue of credit reports, credit scores and their impact on consumers. We will look at reports and studies about the predictive nature of insurance scores and traditional scores, among other things. But as we do so, we also need to look at the basic guiding principles of equity, fairness and transparency.

Some may contend that there is no disparate treatment of minorities in credit based insurance scores. Some will say that, even if there is a disparate impact on some groups, the system still doesn’t need to be changed. The question of how predictive a credit based insurance score is of an insured’s likelihood to file a claim is important, as is the predictive value of traditional credit scores used for credit granting. But as long as there continue to be disparities in the outcomes of the current system for racial and ethnic groups and along class or geographic lines, I believe that the system needs strenuous oversight and may need fundamental change. How to correct the disparities in the system -with its disproportionately negative impact on minorities and low-income groups- while maintaining the core framework of credit information as a risk management tool, is the challenge we should take on.

For example, on issues like the use of credit information for developing insurance pricing and the inclusion of medical debt collections in determining a consumer’s risk of default, I have doubts as to whether these are bias-free uses of data: The Equal Employment Opportunity Commission, the Federal Reserve, the Brookings Institution, the Federal Trade Commission and the Texas Department of Insurance have all found that racial disparities between African Americans, Latinos and whites in credit scoring exist and, as we will see, this has wide-ranging implications beyond simply obtaining consumer credit.

Defending a system where decisions such as determining car insurance rates or even something as vital as whether or not to hire someone that are based on something that has been shown to possess a degree of bias — that is difficult, to say the least. But I welcome the testimony this morning of those who believe the system works, and of those who believe the system needs to be changed to work in a more equitable, fair and transparent fashion. In this same spirit of transparency, I’m making it clear at the outset that I side with this latter group. I don’t think you needed any sort of score or algorithm to predict that.

In order to persuade this committee from moving forward on legislation that would strongly limit what we believe to be unfair practices, the industry witnesses before us must prove to me that not only are the practices we call into question scientifically predictive, but more importantly, that they are fair and equitable to all Americans.

Read More: Rep. Luis Gutierrez

Roosevelt Mosley, a principal with Pinnacle Actuarial Resources Inc. said insurers will need to develop additional analysis techniques to help them assess risks if they can no longer use credit in the underwriting process.

Mosley was speaking to attendees at a Casualty Actuarial Society (CAS) ratemaking seminar in Chicago.

Mosley noted that this year, about 26 bills have been introduced in state legislatures that targeting insurers’ use of credit. “This issue is not going to go away,” he said.

In addition, a number of studies and court cases as well as anecdotal evidence, public perception, and the credit crisis have brought the issue of credit scoring in underwriting into the spotlight again, he said.

“In the last couple of years, the credit crisis and related economic troubles have served to reenergize the debate,” he said.

Read More: Insurance Journal