The Independent Insurance Agents of America (IIAA) is telling state legislators that persuading insurers to modify their business practices offers a more effective solution than regulation in the debate over the use of credit scoring as an underwriting tool. IIAA President-elect W. Cloyce Anders offered the comments in testimony before the Spring meeting of the National Conference of Insurance Legislators (NCOIL) in Charleston, SC.
The use of credit data for underwriting and rating has become commonplace, Anders pointed out, citing a study Conning & Co. released last year. The research reported that 92 of the 100 largest personal auto insurers use credit data in underwriting or rating.
It is not the use of credit information that upsets agents, Anders testified, so much as the way that some companies use it. He blamed increased reliance on credit information for a large jump in counterintuitive underwriting results that is frustrating IIAA members and their clients. “Some companies overuse and overemphasize credit information,” he explained, “and as a result, model clients are inexplicably non-renewed or experience dramatic rate hikes, and consumers with little or no credit history find it harder to obtain affordable coverage.
Anders maintained that it does not have to be that way and pointed to Progressive Insurance as an example of an insurer that has taken positive action on credit scoring. Progressive’s policy, he testified, includes consumer disclosures; not using credit scoring as the basis for refusing, canceling or declining to renew coverage; a ban on using disputed information in its credit formula; and rewriting a policy only when the benefit is to the consumer.
“If other leading companies were to take a similar approach, much of the current controversy would subside,” Anders stressed. “IIAA encourages other companies to follow these types of pro-consumer best practices. Insurers need to re-examine their use of credit information and should adopt balanced and reasonable business practices that consider the interests of consumers.”
IIAA believes, Anders testified, that more consumer-friendly business practices along with consumer education would make legislative or regulatory action unnecessary. “Concern with current company practices and a peaking sense of frustration have caused many state lawmakers to seek a legislative solution,” he said. “Additional regulation and oversight is not the preferred route for anyone in the industry. IIAA wants companies to take a proactive approach to resolving this controversy on their own.”
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