On December 23, The Federal Trade Commission issued Orders to nine homeowner carriers regarding their use of credit scores. The Order applies to the latest nine Homeowner insurance companies, which comprise over 60% of the homeowner insurance market share.

This investigation is important in the homeowner arena because of “redlining” laws that prohibit insurance companies from discriminating against potential policyholders based on race or ethnicity.

Insurers argue that credit scores correlate with claims and costs without any consideration of race. The problem is that, generally, racial minorities tend to be poorer in the United States, and guess who has the lower credit scores?

So, are credit scores a legal way to get around redlining of racial minorities? That is exactly what this investigation is about, and it is needed. For example, in poorer sections of Dade County, where the homes are older and where neighborhoods are primarily African American, few private insurance carriers write policies.

It is possible that the credit score system is perfectly fine and without any intent of discrimination. This is what the FTC found in the case of automobile insurance. However, the only way to find out is to get the insurance companies’ internal records. As we learned from Allstate’s fiasco in Florida, insurance companies love laws that protect their profits, but hate laws and regulators that hold them accountable for misdeeds.

The American Insurance Association takes an absurd and almost laughable response to the FTC Order. It tries to argue that all this is a waste of money and that the FTC should not investigate because consumers’ credit data could be mishandled by the government:

“Consumers should be very concerned that the FTC has ordered companies to hand over such a vast amount of data, including items like a policyholders social security number and mortgage information, with few assurances as to how that data will be analyzed, handled, stored and used. We will be watching this process as it plays out to do our best to ensure that company and consumer interests are protected.”

That is similar to the response we get from insurance attorneys when, in bad faith litigation, we ask about claims departments treatment of policyholders to determine whether the wrongful treatment is isolated or part of a pattern of wrongdoing. Patterns are important because they are generally the result of training and management approval.