NAII Says CT Credit Bill is Redundant and Unnecessary

March 19, 2003

The NAII issued a bulletin opposing a proposed Connecticut bill that would prevent insurers from using credit scoring in insurance underwriting and rating, indicating that it “will do nothing to protect consumers, who are already protected against abuses by existing federal and state laws and regulations.”

“H.B. 5490, which states that no auto insurance rate or premium may reflect an individual’s credit history, is redundant and unnecessary,” stated Gregory W. LaCost, NAII counsel in written testimony to the Senate. He pointed out that the Federal Fair Credit Reporting Act (FCRA) authorizes the use of credit reports “in connection with underwriting insurance involving the consumer.”

“As part of their underwriting process, insurers use credit reports to evaluate the likelihood of an insured loss,” LaCost wrote. “Insurers use credit reports differently from banks and other financial institutions. Insurers use the date to achieve the long-standing underwriting goals of objectivity, completeness, equity, efficiency and profitability.”

The NAII stressed that: “Studies have shown a true correlation between ‘insurance scores’ and risk of insurance loss; and insurance scores do not discriminate against low-income consumers or minorities and are at least as accurate as other sources of information such as motor vehicle records and claim reports.”

“The State of Connecticut Insurance Department has wisely set up rules governing credit scoring or measurement systems by requiring extensive documentation and spelled out unacceptable uses of credit information,” LaCost continued. “We believe these rules adequately protect the insurance consumer.”

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