AIA Opposes Regulation to Restrict Insurers’ Use of Credit Information in Wy.

A proposed regulation (Chapter 56) to restrict the use of credit-based insurance scores could actually cause unintended consequences for Wyoming consumers, according to the American Insurance Association (AIA).

“Restricting the use of credit information in the insurance rating and underwriting process means people who live up to their commitments and who pay their bills on time may end up paying more than they should. This is unfair,” said John Marlow, AIA assistant vice president, Southwest Region. “Credit-based insurance scoring is one of several tools used to differentiate between lower and higher insurance risks, so customers who are better risks pay better rates. The majority of policyholders benefit from the use of insurance scores.”

Testifying yesterday before the Wyoming Insurance Department, Marlow said, “There is strong legislative and regulatory support for the use of credit-based insurance scores as a way to help insurers more accurately price their products. For example, the federal Fair Credit Reporting Act was renewed in late 2003 and that law expressly permits the use of credit information in insurance,” he said.

“Also, the National Conference of Insurance Legislators (NCOIL) passed a model act on credit scoring in November 2002 which protects consumers, addresses the needs of agents and does not artificially impede the ability of insurers to use cost-effective and accurate underwriting tools. As of December 2003, NCOIL reports that 16 states have adopted laws that are either identical or similar to its model,” said Marlow.

“Further, there are additional state mechanisms to ensure consumer protection. The market conduct process allows state insurance departments to assess whether insurers are acting in accordance with laws and regulations. And state prohibitions on unfair discrimination also are in place,” Marlow stated.

Mr. Marlow respectfully urged the Department to consider the practical concerns he outlined in his testimony in the final promulgation of this regulation. “Credit-based insurance scores benefit many consumers and the marketplace. They are an objective and cost-effective tool for insurers to use in accurately underwriting and/or rating risks. Importantly, they improve competition, which ultimately benefits many consumers,” Marlow said.