Alliance Calls New DE Credit Scoring Regulation a ‘Fair Compromise’

The Alliance of American Insurers has issued an announcement indicating that a final Delaware Department of Insurance regulation governing property/casualty insurers’ use of credit-based insurance scores that will go into effect June 1 is “fair to both consumers and insurers alike.”

Lynn Knauf, personal lines policy manager for the Alliance, who testified several times before the department concerning the measure stated: “For the most part, the proposed regulation (Regulation No. 906 – Use of Credit Information) strikes a reasonable balance that addresses the business needs of insurers and the personal lines insurance market with the concerns of consumers.

“The proposal accomplishes the overall goal of permitting insurers to continue to use credit information while protecting consumers from potential abuses,” she continued. “Adoption of the regulation acknowledges that credit-based insurance scores are an effective risk determinant for insurers because they objectively measure the subjective factors of responsibility and stability. In this way their use provides key benefits for consumers, such as availability and consumer choice.”

Knauf noted that the tenor of the department’s regulation is in marked contrast to SB 95, a bill being considered by the Delaware Senate, that would ban insurers’ use of credit-based insurance scoring. “Passage of such a bill would have a detrimental effect on the state’s personal lines insurance market,” she stressed. “Hopefully, we can make the legislators see the benefits insurer use of this information brings to consumers.

“The use of credit reports and scores provides insurers with a greater opportunity to write business in all markets,” she continued. “In fact, use of credit data increases risk predictability and can improve the chance an insurer will accept a risk. By adding another level of sophistication to the process, the scores allow insurers to underwrite and price business with a greater degree of certainty. This enables consumers to obtain coverage at more accurate rates.”

Richard Stokes, government affairs representative for the Alliance’s Northeast Region, added: “This regulation is a fair compromise for both consumers and insurers. We are pleased that insurers will still be able to use credit scoring – an accurate and non-discriminatory underwriting and rating tool – since it is clearly in the best interests of everyone to allow insurers to accurately evaluate and price their business. This is the best way for consumers to receive lower rates based on their favorable credit records.”

He noted that, industry-wide, at least two-thirds of policyholders subject to credit scoring considerations receive lower, or discounted, rates due to their favorable credit.

The Alliance also said, “So far this year, bills regulating insurer use of credit information have been enacted in 11 states: Alaska, Colorado, Georgia, Indiana, Kansas, Maine, Nebraska, North Dakota, Oklahoma, Virginia and Wyoming.”