The National Association of Independent Insurers (NAII) has questioned the approach regulators are taking in formulating direction for the states on the use of insurance credit scoring. The Credit Scoring Working Group met recently during the National Association of Insurance Commissioners’ (NAIC) fall meeting to discuss its options paper and consumer brochure on insurance credit scoring after receiving written recommendations from the industry and interested parties. However, the working group devoted little time to discussion of the options paper or the consumer brochure; instead it heard a report from Walter Wright of the American Academy of Actuaries(AAA) on the recommendation for how to undertake a study of the possible disparate impact of the use of credit on minority and low-income groups. Wright made it clear that the study would not involve the question of a correlation between credit history and the likelihood of claims but would focus only on the disparate impact issue. Wright also defended the use of credit history by insurance companies after a regulator recommended a resolution be passed by the working group denouncing the use of credit in rating and underwriting as a “scam.” Wright emphasized that existing research confirms a strong correlation between credit characteristics and the risk of loss. The AAA intends to present a proposed design for the disparate impact study to the NAIC by December. In other action, the working group also agreed to commission a survey of companies regarding their practices when applicants have no prior credit history, sometimes referred to as “no hits.” The working group said it would ask companies, probably the larger ones, to voluntarily share how their company handles “no hits.” “The NAII believes the working group is heading in the right direction with its options paper,” Sam Sorich, NAII vice president, commented. “Credit scoring remains a controversial issue for many, however, the bottom line is that its use allows insurers to objectively place each policyholder in the risk level he or she belongs. Fair and objective pricing is the result. The options approach reflects the diversity of state regulation and state statutes and we would like to see the working group continue to move forward on this path.” The working group announced that a revised draft of the options paper and brochure would be released this October for another review by the industry and interested parties. NAII had submitted written comments on the drafts of the options paper and brochure prior to this NAIC meeting.
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