Safeco balks as Democrats push for credit-scoring data

WASHINGTON — Safeco Insurance, formerly run by Republican U.S. Senate candidate Mike McGavick, is fighting a Democratic Party attempt to obtain information about its use of credit scoring to cancel automobile-insurance policies.

As Safeco's president and CEO, McGavick promoted the use of credit reports as an effective tool to predict who might be at higher risk for an accident.

Some consumer advocates, though, say credit scoring discriminates disproportionately against the poor and minorities.

A credit score is a number generated by a computer analysis of data in a consumer's credit history.

Safeco relied on credit scoring to cancel more than 2,000 auto-insurance policies nationwide, The Wall Street Journal reported in 2002. The company said it had 2.8 million policies at the time.

The state Democratic Party filed a public-records request in July asking the Washington state insurance commissioner to release information collected for a 2003 study about credit scoring's impact on minorities, divorced women and low-income residents.

Party officials want to know if Safeco is the unnamed company in that review that used credit scoring to cancel automobile-insurance policies in Washington.

Safeco has asked the Thurston County Superior Court to block release of the information.

In an interview, McGavick accused the Democratic Party of trying to get data about private customers.

He also defended Safeco's record. "Because of credit scoring, we could extend insurance to more diverse neighborhoods," he said.

McGavick was a proponent of credit scoring when he became Safeco's CEO and president in early 2001. That April he told shareholders, "We began to step up to aggressive non-renewal of low-credit-score-related business."

McGavick left the company early this year to run against Democratic Sen. Maria Cantwell.

Many insurance companies use credit scoring to help predict risk. But the practice has been controversial. In 2002, the Washington state Legislature passed a law to prevent insurers from using credit scoring to cancel insurance policies outright.

Insurers can still use credit scoring to determine insurance rates.

"Safeco worked with the state commissioner's office from the beginning to establish many of the consumer protections in place today, including their survey," said Safeco spokesman Paul Hollie. "Credit scoring is now only one of several factors considered, and it is not used in our renewal process for pricing policies."

Complaints to state

Starting in 2001, Safeco was "extremely aggressive" in using credit scoring, more so than some other companies, said Washington Insurance Commissioner Mike Kreidler, a Democrat.

"It's a form of redlining," Kreidler said. "I thought it should have been banned."

Redlining is a form of discrimination in which companies charge higher rates or deny services for people in certain neighborhoods.

Kreidler initiated a preliminary review in 2002 of Safeco customers whose auto policies were not renewed. "Almost as soon as I took office [in 2001], I was bombarded with these complaints and they largely focused on Safeco," Kreidler said.

He and McGavick discussed credit scoring in early 2001. McGavick, Kreidler said, made it clear that credit scoring would be the wave of the future.

Kreidler's initial review led to the 2003 study of three insurers, though that study did not name the companies publicly.

The study cited "Firm 1" for relying on credit scoring to cancel auto policies, as opposed to simply raising rates, which the other companies did. It said Firm 1's decisions disproportionately impacted minorities, divorced women and low-income residents.

Many of those terminated by Firm 1 had clean driving records.

"Over one-quarter of those cancelled for low credit scores" by Firm 1 "had no 'incidents' in the insurer's records, though some had been with the insurer for more than 10 years," the 2003 study said.

"Seventeen percent of apparently accident-free cancelled policyholders were minorities."

2003 study

State Democrats want the Insurance Commissioner's Office to identify Firm 1, said Shelley Hall, a lawyer representing the party.

On Aug. 18, Safeco filed a 122-page brief to block Kreidler's office from identifying whether Safeco was one of the companies in the 2003 study.

Safeco's lawyers say releasing the information would reveal trade secrets and proprietary information to competitors.

Safeco also does not want the insurance commissioner to release the unpublished 2002 preliminary study, which focused on the effects of Safeco's credit scoring.

A Thurston County judge granted a temporary restraining order pending a hearing on Friday.

Kreidler said he believes there is nothing proprietary in the 2003 study.

Also in 2003, Congress ordered the Federal Trade Commission to conduct a detailed national review of credit scoring.

The FTC study was due last December. It was delayed until June, and now it will not be ready for release until December this year.

Alicia Mundy: 202-662-7457 or amundy@seattletimes.com