NAII Says Ohio’s Proposed Credit-Based Scoring Rules Soften, but Need Fine-Tuning

Ohio’s proposed credit-based insurance scoring rules have softened, but need additional fine-tuning to be more effective and beneficial to consumers, according to the National Association of Independent Insurers (NAII).

In a Dec. 27 letter the NAII delivered to new Ohio Insurance Director Ann Womer Benjamin, NAII noted the Ohio Insurance Department made considerable changes to the insurance scoring regulations since last fall, but the proposal still falls short of the ideal standards for the use of credit history and insurance scores in connection with underwriting and rating personal lines coverage.

“The insurance scoring regulation will be a good barometer to indicate whether Director Womer-Benjamin is committed to avoiding regulations that serve as barriers to competition,” NAII Counsel Robert Hurns said.

“Former commissioner Lee Convington helped clamp down on unnecessary burdens on insurance businesses with no real benefit to consumers or regulators—such as outdated agent and company licensing provisions, unnecessarily complicated rate and form approval processes and state deviations from National Association of Insurance Commissioner’s financial accreditation models. We hope Womer-Benjamin continues in this synergistic vein,” he added.

Thursday, Jan. 9, was the final day for the public to submit comments on the insurance scoring rules to the Ohio Insurance Department. The department now can file the final insurance scoring rules as soon as Jan. 27, and has noted that insurance companies would be required to fully comply with the rules within 90 days of the enactment date.

NAII supports provisions in the rules that would prohibit using credit as the sole basis for an underwriting and rating decision. It also backs the mandate that companies using insurance scoring in determining coverage and rates must disclose the use of credit to consumers—both when credit information is initially used in underwriting and when it is a factor in an adverse action, such as non-renewal or rate adjustment.

The regulations also calls for an insurer to describe to consumers the factors in their credit history or insurance score that led to an insurance company’s adverse action against them in underwriting or rating. In the letter to the commissioner, NAII said that complying would be extremely difficult because insurers only receive a raw insurance score, not detailed information about factors in a person’s credit history.

“In the interest of accurately and completely informing policyholders, we believe it would be better if the policyholders themselves obtain explanations regarding their credit information from the credit-scoring vendors,” Hurns said.

“Another plausible solution would be for insurance companies to provide standard, general descriptions to policyholders about what could potentially lead to a negative credit score, such as late payments on bills, opening multiple credit card accounts, and bankruptcy filings.”

Also, if a consumer’s premium must be adjusted to reflect his or her updated insurance scores, the new data should be used to adjust rates for both those with improved insurance scores as well as for those whose scores have deteriorated.

“Insurance scoring should be a two-way street,” Hurns said. “The tool is about predicting risk. Therefore, adjustments following credit checks should be made in either direction.”

Topics Legislation Ohio