Texas Credit Property Loss Ratios for Selected Companies

Table 4

Texas Credit Property Loss Ratios for Selected Companies

Excessive Lender Commission and Other Compensation

Credit compensation consists of commission and other compensation, such as profit sharing. Table 5 shows the credit compensation ratios in Texas by coverage for 1995 and 1996. On average, compensation to creditors for 1995 and 1996 was almost as much of the premium dollar (about 38%) as payments to consumers (about 42%). For credit unemployment and credit property insurance, creditor compensation greatly exceeded claim payments to consumers.

Table 5

Texas Credit Insurance Creditor Compensation

(Commissions and Other Compensation as Percentage of Earned Premium)

Data from the National Association of Insurance Commissioners allows a breakout of credit property insurance associated with credit cards from credit property insurance associated with term loans. The category of "Other" in Table 6 shows credit property insurance sold with credit card loans produced loss ratios of 9.7% and 5.9%. (See appendix on data sources for detailed discussion of NAIC Credit Insurance Experience Exhibit data.)

Table 6

Credit Property Insurance in Texas
By Type of Coverage

Excessive Creditor Compensation

As described above, the compensation paid to creditors is excessive in relation to the activities performed by the creditor, but the high commission levels paid for credit property and credit unemployment insurance are particularly excessive. Because credit property is typically sold as part of a package of credit insurance coverages, the cost to the creditor of offering the additional coverage is minimal once the system is set up to sell the basic life and disability coverages. Thus, there is little or no need for additional creditor compensation for credit unemployment and credit property insurance. Yet, the compensation ratio for credit unemployment and credit property insurance is even higher percentage than for life and disability.