NAMIC Board Endorses Insurance Scoring Methods

The Board of Directors of the National Association of Mutual Insurance Companies (NAMIC) has endorsed the use of a consumer’s credit history by property/casualty insurers to help them make underwriting, marketing and rating decisions. NAMIC does not advocate the use of credit histories by themselves, but as one predictive tool among many.

“Credit information has been widely used in other segments of the financial services industry for years and insurance scores have proven to be a strong predictor of whether a policyholder will likely file a claim,” said David Reddick, NAMIC’s market regulation manager. “One explanation given is that financially responsible individuals are more likely to be responsible in other aspects of their lives, including having a strong predilection for avoiding traffic mishaps.”

“In a competitive marketplace, NAMIC finds no reason why insurers should be prohibited from using insurance credit scores in underwriting and rating a risk,” Reddick said. “It is a far more accurate and objective methodology than traditional underwriting practices and insurance credit scores have been shown that they do not penalize financially responsible individuals through premium subsidization.”

Most major personal lines insurers use consumer credit histories today to develop insurance scoring models and believe that when combined with traditional underwriting data, the histories can greatly improve the insurer’s ability to predict future claims costs.

Insurers also believe insurance scoring models result in more efficient, accurate and consistent underwriting and pricing. This can mean lower premiums for policyholders.

Use of consumer credit information has existed since the 1950s, and is widely used by other financial services industries, including credit card issuers, banks and home mortgage lenders.

The National Association of Insurance Commissioners Market Conduct & Consumer Affairs Committee plans to examine this issue in 2002, and particularly how credit histories are used in calculating rates.

“Supporting measures that allow for credit to be used along with other factors in both rate making and underwriting is a top NAMIC priority for 2002 in state legislatures and the NAIC,” said Roger Schmelzer, vice president-regulatory affairs.