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September 4, 2002
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Insurance Premiums Examined by Senate Committee

AUSTIN - When can your insurance rates jump up, even though you've never had a claim? When you're an insurance customer in Texas and your credit is less than perfect. That's what the Senate Committee on Business and Commerce heard today, September 4, 2002, during a hearing in Austin.

Representatives from the Texas Department of Insurance (TDI) told the Senators that insurance companies are moving customers from rate-regulated subsidiaries to deregulated subsidiaries and increasing their rates just because they may have been late on a payment. Brian Ryder, Audrey Selden, Catherine Ryder testified that consumer may not realize what's happening to them until a bill comes that's double their previous rates. They also said that when people are put into high-risk categories by mistake, the companies refuse to refund the overcharges and unfairly report inaccurate credit histories. Insurance agents as well report having problems with companies, since when customers are denied coverage they are unable to purchase new homes.

The second panel, Juan Chapa or Corpus Christi and Kathryn Perry of Wimberly, are both consumers who say they have been abused by the insurance companies. Chapa testified that Farmers Insurance for two years denied him entrance into a preferred company without reason and then placed him into an unregulated company without reason. He said at first Farmers refused to provide reasons for this as well as a later cancellation and he only later found out it was due to inaccurate information in a credit report. Perry said her company had cancelled her for one late payment without notice.

Consumer Advocates Birny Birnbaum, D. J. Powers, Rob Bordelon and Rob Schneider followed. Birnbaum testified that agents aren't testifying about problems because they're concerned they'll be fired and that the industry should not be able to use credit scoring as a way to raise rates. Powers said that had the Texas Department of Insurance acted sooner, today's problems could have been avoided. Rob Bordelon said the practice of using credit scoring to increase rates has been around for a long time, but has increased greatly in the past few years and that some companies consider credit history more important than a person's driving record. Rob Schneider provided written testimony.

The representatives of the insurance industry then had the floor. This fourth panel started with Eddy Lo from Fair, Isaac, a company that develops software for insurance companies. He talked about how credit scoring is set by the software in trying to predict the likelihood of loan repayment. Senator Fraser discussed with him how someone with a high monthly balance in a credit card, even if it is paid off every month, can affect a credit report if it is made before the payment is credited. Responding to other senators, Mr. Lo says his is just a tool that insurance companies can use but they don't give recommendations about how or for what end to use it. Mr. Jeffrey Skelton from Choice Point said that the industry is working to get information to consumers about how they are scored for insurance purposes, to give them another tool to control their insurance costs. Denise Ruggiero from State Farm Insurance described how her company determines eligibility. Other insurance company representatives denied earlier charges that they were, in effect, using credit scores to deny coverage to minority applicants.

Insurance Commissioner Jose Montemayor began the mid afternoon testimony, briefing the committee on the history of mold complaints in Texas and their effect on homeowners insurance rates. He also described other losses that cause Texas rates to rise. Susan Dayberry and Tom Archer, both Austin homeowners and Audrey Selden from the TDI told the committee of problems in the mold claim handling process with Farmers and Nationwide Insurance.

Todd Hunter and Bruce Mery, attorneys, spoke on the litigation that has surrounded Texas mold complaints. They also addressed how the building trades have "insulated themselves from liability", despite what they called poor construction techniques.

Later in the afternoon, witnesses were also scheduled to testify on the role of remediators, the role of public adjusters, mold standards and the effect of mold on home sales.

The acting chair of the Senate Business and Commerce Committee is Senator Troy Fraser. Members include Senators John Carona, Mike Jackson, Eddie Lucio Jr., Frank Madla Eliot Shapleigh and Leticia Van de Putte. The committee recessed subject to call of the chair.

Session video and all other Senate webcast recordings can be accessed from the Senate website's Audio/Video Archive.