FTC Probing Insurers Over Credit-based Homeowners Insurance Pricing

U.S. regulators have asked nine major insurance companies, including Allstate Corp. and Travelers Cos. Inc., to provide information about how they set prices for homeowners’ coverage.

The Federal Trade Commission said it ordered the companies to provide data about credit-based insurance scores.

An FTC study on automobile insurance released in 2007 found that the scores allowed insurance companies to determine who was likely to be high risk and to charge those people more.

The study found African-Americans and Hispanics tended to have lower insurance scores than whites and Asians and, because of this, tended to pay more for auto insurance.

The other companies queried about the study for homeowners insurance were Chubb Corp., State Farm Mutual Automobile Insurance Co., Fire Insurance Exchange, Nationwide Mutual Insurance Co., United Services Automobile Association, Liberty Mutual Holding Co. Inc. and American Family Mutual Insurance Co.

The FTC said the insurers subject to the order have roughly 60 percent of the homeowners insurance market in the U.S. The affected companies have until April 24, 2009 to respond.

Insurers say the FTC order is unnecessary, costly and risks consumers’ privacy.

“We are disappointed the FTC chose this route, despite the industry’s good faith efforts to work cooperatively to find a sensible, secure, and cost effective alternative to provide the data the FTC says it needs to conduct its study,” said David Snyder, American Insurance Association (AIA) vice president and assistant general counsel. “The use of a ‘compulsory process’ does not allay our serious concerns about the handling and protection of massive amounts of consumer data.”

The FTC study in 2007 was completed without asking for information from insurers, the AIA says.

“The use of credit-based insurance scores benefits a vast majority of consumers and is one of the tools that enable insurers to provide sound pricing models. We’re confident the FTC, just as they found in their auto study, will learn the same thing in this latest examination,” added Snyder.

The AIA says the FTC has demanded information “far beyond what is needed, and often data insurers do not even collect, to complete their study of homeowners insurance and credit-based insurance scores.”

The FTC order itself can be found at: www.ftc.gov/os/2008/12/P044804facta.pdf.

Reuters contributed to this story.