NAIC Adopts Privacy Amendment, Postpones Action on Credit Proposals

December 11, 2002

The National Association of Insurance Commissioners (NAIC) has adopted an amendment to its model privacy regulation pertaining to notices for workers’ compensation risk despite unanimous
industry opposition. The amendment may now be considered by state
insurance departments that have already adopted privacy model regulations, many of which excluded workers’ compensation.

“This amendment was opposed because it is burdensome and confusing,” Robert Zeman, National Association of Independent Insurers (NAII) senior vice president, government affairs, said. “States will now have to consider whether it is appropriate to amend their existing privacy regulations to add an amendment that clearly goes beyond the intended language in the Gramm/Leach/Bliley Act. If insurance departments consider adding the amendment, NAII will strongly oppose this action.”

In other action, the proposals to adopt a brochure for consumers on the use of credit scoring in rating and underwriting as well as an options paper on recommended practices for insurers was postponed by the Credit Scoring Working Group. The working group had heard from interested parties prior to the meeting and during the meeting voted to revise both the brochure and the options paper by Dec. 20. During the week of Jan. 6 a conference call will be held to give approval to final versions of the brochure and options paper.

“The NAII submitted numerous comments on both the brochure and on the options paper,” Sam Sorich, NAII vice president and western regional manager, said. “Our main objection in the brochure was inclusion of a section on disparate impact. As an educational tool with the goal to provide factual information about the use of credit scoring to consumers inclusion of speculation about disparate impact added no real value to the piece and was inappropriate. ”

The committee also voted to consider undertaking a study of the whether insurers’ use of credit information has a disproportionate impact on minorities and low income consumers. The matter will be taken up again during the working group’s March 2003 meeting.

The working group also received a report from a subcommittee of the
American Academy of Actuaries on the use of credit history for personal lines insurance. Sorich called attention to a statement in the report that asserts that “the subcommittee believes that credit history can be used effectively to differentiate between groups of policyholders and therefore it is an effective tool.”

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