PCI Comments on NAIC’s Adoption of Insurance Credit Scoring “Best Practices”

September 15, 2004

The Property Casualty Insurers Association of America has issued a critical statement following the adoption by the Credit Scoring Working Group of the National Association of Insurance Commissioners (NAIC) of its “best practices” document, despite strong objections from insurers.

PCI representatives had testified against the adoption saying that consumers would be better served by the development of consumer education materials on the use of credit-based insurance scores.

“Sending a ‘best practices’ list to states at this juncture is not appropriate or productive,” stated Lenore Marema, PCI VP-industry and regulatory affairs. “As we have said before, many states have already enacted statutes on the use of credit-based insurance scores. Creating a ‘best practices’ list at this point begs the question concerning the wisdom and prudence of state legislators when enacting their own state laws.”

The bulletin pointed out that the “NAIC Working Group throughout this process has said its intent was not to alter or amend applicable state law, create a cause of action, or impose limitations on insurers that do not exist under the law;” however “even without the intent–this document will do just that,” the PCI said.

The association also noted: “Even though it carries no regulatory or legislative mandate, the ‘best practices’ document may foster the need to consider amending the laws of several states. Most of these laws are were enacted with the provisions of the model law developed by the National Conference of Insurance Legislators (NCOIL), which addresses many of the provisions in the working group’s ‘best practices’ document.”

“State legislators are enabled and charged with developing public policy. Creation of a ‘best practices’ document will only impose arbitrary standards on existing statutes that ultimately could be confusing and counterproductive,” Marema stressed.

Specifically PCI remains concerned with the Working Group’s reliance on an overly-broad FTC interpretation of adverse action. PCI said that the definition of adverse action adopted today is still overly broad and would amend current law and create new requirements for insurers. In addition it is not aligned with definition of adverse action found in the Fair Credit Reporting Act (FCRA), the National Conference of Insurance Legislators’ (NCOIL) model or most of the laws in other states. The FCRA definition is “denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for, in connection with the underwriting of personal insurance.”

“Simply stated, a new business customer cannot experience an adverse action with initial rating or issuance of the policy because there has not be a change in the rate or terms of coverage,” Marema explained.

In other areas PCI said that Scoring Model Submission Standards that requires insurers to file their model or algorithm are not necessary and may impede speed to market and should only be required where the confidentiality of those models are guaranteed. Confidentiality was not addressed in the “Best Practices” document, Marema said.

“Our work in the states is clear with the passage of this model. PCI intends to support our long-held conviction that this document is counterproductive and unnecessary,” Marema said.

PCI said it would continue to encourage the NAIC to develop better consumer education pieces on how insurers use credit information, consumers’ rights under federal law and how consumers may improve their credit records.

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