Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, August 21, 1995                   TAG: 9508220002
SECTION: MONEY                    PAGE: 6   EDITION: METRO 
SOURCE: JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
DATELINE: NEW YORK                                LENGTH: Medium

CREDIT HISTORY MAY AFFECT CHANCES OF GETTING INSURED

Before they'll approve you for homeowners or auto coverage, or decide how much to charge, they'll pull your latest credit report.

If they think you're not financially stable, you might be rejected for coverage or pushed into a high-risk pool - even if you've never had an auto accident or made a claim on your household hazard coverage. They might even cancel a policy you just bought.

This can happen at more than 100 property-casualty insurance companies that use a credit test developed by Fair, Isaac & Co., a statistical risk-evaluation firm in San Rafael, Calif. Allstate Insurance uses a separate test of its own.

But how reliable are these tests?

Users say there's a clear connection between good credit risks and good insurance risks. They claim that people who don't pay their bills are more likely to file a theft, fire or accident claim.

But the users disagree on details. For example, Allstate said the test works for both auto and homeowners insurance while State Farm and Nationwide think that it's mainly good for homeowners. Fair, Isaac thinks that Allstate's system may weed out people who ought to be accepted.

Birny Birnbaum, chief economist for the Texas Department of Insurance, said all of the tests are flawed.

``The department doesn't find the results conclusive,'' he said, ``because they won't give us the data behind the studies.'' Birnbaum says he believes the studies weren't controlled for other known risk factors, so they don't give a true picture of what, if anything, a poor credit history implies.

A committee at the National Association of Insurance Commissioners has been seeking to check the validity of the insurers' tests, so far without success. Many of the commissioners, however, accept what the insurers say.

Fair, Isaac and Allstate said they won't disclose their methodology because it gives them a competitive edge. But they'll tell you what's in their black-box calculation.

Fair, Isaac evaluates at least 35 pieces of credit information. No single one makes a bad insurance risk, said Wendell Larson, director of marketing for the insurance division. What matters is your total score.

It includes how long you've had your credit card, the number of accounts that are 60 days past due, and any liens, judgments or bankruptcy filings. The test covers general credit information for the past five years and late-pay information for the past two years.

Allstate screens for several major credit blemishes incurred in the past five years, including foreclosures, judgments, bankruptcies and liens; also, the second time you were subject to garnishment or repossession, or left a bill of $100 or more unpaid for at least three months.

Just one of these problems can tip you into Allstate's high-risk company, which charges 50 percent to 100 percent more for coverage.

Allstate associate counsel Steve Sheffey said credit reports can sometimes help people get insurance. If you have a blemish on your driving record but a good credit history, you're more acceptable to Allstate than if the company looked at your driving record alone.

State Farm has used credit reports for homeowners coverage, but not in a systematic way. It suspended that practice last year, in order to compile statistics on how well it actually worked. Nationwide uses credit reports sporadically for auto insurance and more often for homeowners insurance.

One big question is whether discrimination is at work.

Allstate checks all new applicants for auto insurance in most states (in California, it's not allowed). But applicants for homeowners insurance are checked only if they're ``high risk.'' A prejudiced agent might consider everyone high risk who lives on the wrong side of the tracks.

In Arkansas, one insurer was found to be pulling credit histories only on people with houses insured by the Federal Housing Administration or Veterans Administration (those would be homes of moderate value). A Texas company doesn't check doctors and lawyers.

Even an apparently evenhanded standard - like checking credit reports for people with frequent job changes - may impact lower-income people more.

Unless insurers disclose their methods and apply the tests to everyone, pulling credit reports is going to look like unfair discrimination in disguise.