Allstate Corp. has agreed to modify the way in which it uses credit reports in setting auto and homeowners insurance rates, a practice commonly referred to as insurance scoring. This decision is part of a settlement of a federal lawsuit brought in Texas by seven customers who claimed that Allstate’s use of credit reports in underwriting discriminated against blacks and Hispanics. Allstate denied wrongdoing in the settlement.

Although this seems to be the first settlement of its kind, it’s notable that Allstate did not abandon insurance scoring in its settlement. Rather, the insurer has made modifications to its scoring formula, which will now be publicly available. In states where insurance scoring is permitted (a vast majority), Allstate has agreed to allow customers to have their policies priced using the new formula. If a customer should experience an extraordinary event that adversely affects their credit score, Allstate will have an appeals process in place so that the customer can petition for a lower rate.

Class members who apply will be eligible for a one-time monetary payment of $50-$150. Allstate will also provide class members with education about credit scores: when they are used and how to improve them.

Allstate Settles Texas Insurance Scoring and Discrimination Lawsuit (Insurance Journal 6/2/06)

Allstate Settles Lawsuit Brought by Minorities (Reuters 6/2/06)

June 13, 2006