N.J. Gives Green Light to Credit Scoring

May 3, 2004

New Jersey insurance officials, after reviewing their own test and the results in other states, have decided to permit the use of credit scores in the rating of private passenger auto policies by all insurers.

Last year, the Department of Banking & Insurance permitted Mercury General to utilize credit scooting as a test of the controversial method.
The results have helped convince the state to expand the practice.

“After extensive review, including the experience of the insurer permitted to utilize insurance scoring and the experience of more than 40 states that currently permit its use, the department has determined that it is reasonable and appropriate to permit property/casualty insurers to submit insurance scoring plans for private passenger auto for review,” Commissioner Holly C. Bakke announced.

Individual insurers must submit insurance scoring plans to the state for approval before using them.

Bakke set forth certain conditions that must be met in an individual carrier scoring plans, including: full disclosure to the department of how scoring is to be used and the statistical validation for its approach; plans may not consider race, sex, ethnicity, age, religion, income, residency, collection accounts with a medical code or multiple inquiries within 30 days for home and auto loans; insurance scoring may only be used as one of the factors in rating; a credit score may not be used in pricing the state’s basic insurance policy or the so-called dollar-a-day policies.

The rules provide protections for consumers with no credit histories and those influenced by “extraordinary life events” including catastrophic illness, death of a close relative, identity theft, loss of employment or divorce.

Five additional insurers have applied to use credit scoring, according to the department.

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