AIA Opposes Mass. Bill on Credit Scoring

March 10, 2004

The American Insurance Association joined the PCI (See IJ Website Mar.9) in announcing its opposition to a Massachusetts bill (SB 2093) that would ban the use of credit-based insurance scores.

The AIA said passage of the measure “would do more damage to the state’s already struggling insurance marketplace.”

“Massachusetts’ overly regulated marketplace for auto and homeowners insurance has already driven most large national insurers out of the state,” indicated Paul Moran, AIA vice president, northeast region. “In Massachusetts, only 10 auto insurance writers control 90 percent of the market. Restricting insurers’ use of proven tools to predict risk and further politicizing the insurance market will only make matters worse,”

Moran noted that while insurance scores are not used in Massachusetts’ current system of government price fixing for personal auto insurance, if the Commonwealth wants to move to a competitive system, as both the governor and attorney general have stated, then insurance scores would be a useful tool that may help to attract more insurers to the state.

“The use of credit-based insurance scores has proven to be a powerful predictor of risk that allows insurers to accurately price their products so that those who present the highest risk pay a fair premium and those who present lower risk benefit,” Moran continued. “The use of insurance scores helps to increase availability of insurance that is fairly priced.”

He also noted that the use of credit-based insurance scores is expressly authorized under U.S. law and is permitted in most states for personal automobile and homeowners insurance, subject to regulation. “Many states have taken a balanced approach to regulating use of insurance scores that both provides consumer protections and allows insurers to use this powerful tool. Massachusetts would be better served by taking this approach. The proper regulatory balance assures that consumers see the benefits of insurance scoring – such as increased competition, consumer choice and accuracy in risk assessment – while addressing any real problems that may arise.”

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