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Credit Insurance in Texas: Better Rate Regulation Needed to Protect Consumers
April 1998

Note: Please read the general Credit Property Insurance Executive Summary first.

The percentage of premiums paid out in benefits, or loss ratio, indicates the overall value of the product for the consumer. Credit insurance loss ratios are very low, and in some cases, are unconscionably low. On average, credit insurers are paying just over 40 cents on the premium dollar in claims in aggregate, resulting in a loss ratio of just over 40%. Table I shows that loss ratios for credit unemployment and credit property insurance in Texas are below 20%.

For credit property insurance sold in conjunction with credit cards, the loss ratios were 9.2% and 5.9% in 1995 and 1996, respectively. From 1992 through 1996, Allstate Insurance Company had a credit property insurance loss ratio of less than 3%.

Table I

Texas Credit Insurance Loss Ratios, 1993-96

Credit insurance is big business in Texas and growing. Table II shows that credit insurance premiums grew dramatically from 1993 to 1996. Credit insurance sales for these four coverages were almost $400 million in 1996.

Table II

Texas Credit Insurance Earned Premiums, 1993-1996

($ Millions)

The low loss ratios for credit insurance indicate grossly excessive rates. Table III shows that, when compared with reasonable loss ratios for these four coverages, consumers were overcharged over $450 million dollars from 1993 to 1996. With an estimated $150 million in excessive premiums for 1997, the five year total of excessive premiums jumps to more than $600 million.

Table III

Excess Texas Credit Insurance Premiums, 1993-1996

($ Millions)