Credit Scoring

Montana Slaps Farmers Alliance Insurance

April 9, 2003
Montana State Auditor John Morrison has filed an administrative action against Farmers Alliance Mutual Insurance alleging violations of credit scoring laws. Morrison said Farmers Alliance failed to provide a Bozeman consumer with specific reasons for increasing her insurance premiums after she had submitted a request in writing to the company.

"Credit scoring is a consumer issue of national concern, but Montana law allows for its use," said Morrison. "If companies are going to use it, consumers have the right to know how it is being used and how it affects their premiums."

The Bozeman insurance customer had questioned an increase in her auto insurance rate and was directed by her insurer, Farmers Alliance, to look to her credit rating and credit score as possible causes.

A credit score is a number that insurance companies give consumers based on credit experience. They factor in the number and types of credit cards used, outstanding credit balances, the number of recent credit inquiries and the age of a consumer's credit accounts.

Choice Point, a credit scoring agency used by many insurers, reported significantly different credit scores for the consumer and her husband. The woman's credit score was 188 points lower than her husband's.

In the action, the state auditor's office asserts there has been no change to the couple's financial status over the past two years that could justify a change in financial stability as determined by the insurance company. The auditor's office found that after more than 20 years of marriage, credit reports for the consumer and her husband were very favorable and nearly identical.

Choice Point informed the woman that consumers who use retail accounts to buy merchandise have more insurance losses. Retail accounts include clothing stores, jewelers, furniture, mail order and variety stores such as J.C. Penney's and Sears. Consumers who have established accounts with oil companies have better loss experience. This includes cards issued by gasoline and service stations such as Texaco and BP.

The woman's lower score in 2002 apparently caused her insurance premiums to go up. Despite her written request, Farmers Alliance failed to provide the woman with any explanation for the rate increase as required by law.

"Insurance companies sometimes adversely treat consumers based on the types of credit cards they carry," Morrison said. "It's important for consumers to know the specific credit factors that negatively impact their credit score."

The company has 15 days to respond to the allegations.

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