The National Association of Independent Insurers announced that representatives had appeared at a public hearing held yesterday in Delaware to ensure that the effectiveness of credit-based insurance scoring was not compromised by restrictions in a proposed regulation on the use of credit information.
“Insurance scoring has benefited the vast majority of consumers and enabled insurers to more accurately allocate the cost of coverage based on risk of loss,” stated Michael Harrold, senior director, state government affairs for NAII. “We appreciate many of the thoughtful and positive revisions the Delaware Department of Insurance have made to the proposed regulation. However, the NAII believes the regulation needs further modification and clarification in order to ensure that this actuarially justified tool can continue to be used to achieve what consumers demand – an insurance premium that is in proper proportion to the risk they represent.”
Initially the NAII is concerned that the proposed regulation appears to require insurers to “re-score and re-underwrite their books of business if their current models contain any of the newly prohibited factors, and then every two years after that.” It is suggesting that Delaware replace this requirement with Section 5(G) of the National Conference of Insurance Legislators model insurance scoring act. (NCOIL)
“Under NCOIL, scores are run not later than every three years. However, based on a consumer’s request or an insurer’s underwriting guidelines the timeframe can be decreased. Additionally, insurers can choose not to incorporate insurance scores as a factor after the initial underwriting phase or may choose to remove insurance scores as a factor upon renewal prior to the time-period in which they would be required to re-score their policyholders. The NCOIL model provides more flexibility to both insurers and consumers. This flexibility would lessen the mandated turbulence that the proposed regulation’s current wording would impose on policyholders,” Harrold indicated.
The NAII is also seeking clarification that the ‘but for” language used in the definition of adverse action under Section 5.1.45 of the proposed regulation to assure that it would not be interpreted to negate or supercede the “sole basis” and “without consideration of other underwriting or rating factors” language that applies to prohibited practices under Section 5.2.2.
In particular, the NAII sought assurances that the “but for” language would not be interpreted to mean that credit information can never be a factor that, when added to other factors, could lead to what is considered to be an adverse action and a prohibited practice.
It’s also concerned by Section 6.3 of the proposed regulation that allows an applicant or policyholder to delay an insurer’s decision to refuse, deny or nonrenew a policy if the consumer submits a statement indicating that they want to check the accuracy of their credit report.
“This section should be removed because it has the potential to be abused by consumers who will have nothing to lose by attempting to game the system in order to postpone an adverse action. It is unreasonable to force an insurer to continue providing coverage to a rejected applicant or terminated policyholder when the credit information upon which the decision was based has an overwhelming likelihood of proving to be accurate. A more workable solution to address the small number of inaccuracies is to require insurers to re-evaluate their underwriting or rating decision once a credit report is corrected,” said Harrold.
The NAII also seeks changes to Section 7.3 of the proposed regulation, which addresses exceptions for extraordinary life events. Currently it is not clear if this section is mandatory or voluntary. To ensure that an insurer granting an exception will not be held liable for not following its filed rating plan and will not be found out of compliance with any other Delaware law, NAII recommends that the department revise this section.
“Generally, the revised regulation does a better job of providing consumer protections while maintaining insurers ability to use this highly predictive tool. By addressing the issues raised at the hearing by the NAII and other insurers, the proposed regulation will better meet the needs of all parties,” Harrold concluded.
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