Topeka ? Credit scoring  the practice of using a person’s credit record to set insurance rates  is at the center of a state insurance agency investigation and the subject of a new special task force to be led by Lawrence Realtor Mike McGrew.

Formation of the task force was announced Wednesday by Gov. Bill Graves.

State insurance regulators earlier told the Journal-World they were looking into complaints about credit scoring by Farmers Insurance Group, one of the largest insurers in Kansas.

Jim Harwood, executive director of Farmers in Kansas, denied any wrongdoing on Farmers’ part. He also is going to serve on the 14-member task force that will analyze credit scoring and make recommendations next year to the Legislature.

In Kansas, there are no specific laws prohibiting credit scoring and the practice is being abused, according to Vicki Buening, a spokeswoman for the state Insurance Department.

“We are working without any guidelines or criteria,” Buening said. “We are attempting to get insurers not to use credit scoring, or if they do use it, use it with other factors.”

Determining rates solely based on a person’s credit history is not relevant to the amount of risk being covered or the person’s ability to pay premiums, she said.

For example, an insured person could have suffered a serious illness and fallen behind on paying bills. Then when that person’s homeowner’s or auto insurance is renewed, the company looks at the creditors’ report and significantly increases insurance rates.

Buening said credit scoring had been a long-time practice, but initially it was just one of many factors used by insurance companies in setting rates.

“It has sort of evolved into more in the realm of where it becomes a major piece of the rating structure, and in some situations it may be the only piece,” she said.

Harwood denied Farmers used only credit scoring when determining rates. But, he said, personal consumer information has a strong correlation with a consumer’s likelihood of experiencing a loss. Using that information in setting rates helps Farmers provide a fair rate for all customers, he said.

Harwood said he planned to meet soon with Insurance Department officials to discuss Farmers’ use of credit scoring.

“I’m confident that we will be able to answer their questions,” he said.

He said he had no explanation for the Insurance Department’s claim that complaints about the issue against Farmers have increased dramatically.

Farmers is the third-largest homeowner’s and auto insurer in Kansas, with combined premiums in those areas of insurance of about $220 million per year. The company also is under fire for its use of credit scoring in Texas, where state officials have frozen Farmers’ rates and filed a lawsuit alleging deceptive and discriminatory pricing practices. Farmers’ officials there have said the allegations were politically motivated.