According to National Association of Independent Insurers (NAII) Northwest Regional Manager Michael Harrold, insurance companies’ use of credit information clearly benefits most consumers, in terms of both price and availability of insurance. Harrold stressed that point at a state House Financial Institutions and Insurance Committee hearing on the issue last week. Working out of the NAII’s Northwest Regional Office in Seattle, Harrold also has been aggressively defending insurers’ use of the credit-based insurance scores in various venues in Oregon, Alaska and Colorado.
The interim hearing before the Washington House Financial Institutions and Insurance Committee was convened at the urging of Washington State Insurance Commissioner Mike Kreidler, who publicly unveiled his proposal to prohibit the use of credit scoring in underwriting, cap rate differentials based on credit information at 20 percent, and seek rulemaking authority to further limit insurers’ use of credit information if it is shown to negatively impact the number of uninsured drivers in the state.
“Using credit scores enables insurance companies to offer most of their customers lower rates and to write and renew more policies,” Harrold told the Committee. “It enables insurers to more aggressively and confidently write in all markets, including urban markets. Most importantly, insurers’ use of credit scores provides a fairer pricing structure by better matching rates with the risk of loss.”
Insurers contend that credit information provides an objective and unbiased tool for underwriting and rating insurance risks. Insurance scores do not consider income, address, race, ethnicity, religion, gender, familial status, handicap, nationality, age or marital status.
Credit scores have no relationship with how much money a person makes, Harrold noted. Rather, the scores reflect how responsibly an individual manages whatever amount of money he or she earns.
“Efforts to impose uniformity on how insurers use credit-based insurance scores would be counterproductive,” Harrold cautioned. “The different ways insurers use credit information represents the essence of competition, which benefits the marketplace and consumers. Restricting the use of credit-based insurance scores could have the unintended consequence of negatively impacting both the affordability and availability of insurance.”
In Oregon, Harrold is a member of the Oregon Insurance Division’s Credit Scoring Rulemaking Advisory Committee. The 12-member committee is comprised of insurance companies, agents, consumer representatives, and the NAII. The committee has held four meetings to date, as it works its way toward considering language for an Insurance Division rule and possible recommendations to the legislature.
The majority of the advisory committee’s first four meetings have been devoted to the presentation of stakeholder views regarding insurer use of credit information. The NAII was charged with presenting to the committee the case for insurer use of credit information in underwriting and rating. The committee will begin wrestling with suggested regulatory language at its next meeting on Dec. 18, 2001.
In Alaska, the NAII recently met with Division of Insurance Director Bob Lohr in Anchorage to discuss insurer use of credit information. Although a proposed regulation is not currently in the works, Harrold discussed the correlation between insurance scores and loss ratios and the benefits credit-based insurance scores provide to consumers and the marketplace.
A current problem faced by the Alaska division, insurers and vendors is the lack of protections under Alaska law to ensure the confidentiality of credit information scoring models that are being requested for review by the division. Lohr would like to extend confidential status to such proprietary models, however, and has asked the NAII for assistance in developing some appropriate legislative language to address the problem.
Colorado, which also is handled by the NAII’s Northwest regional office, has seen its fair share of activity on the credit information front as well. After beating back a proposal to prohibit the use of insurance scores in auto and homeowners insurance during the 2001 legislative session, the NAII hosted a credit information forum for Colorado legislators.
As an outgrowth of the forum, the NAII and a bipartisan group of legislators agreed to principles that legislators believed benefited consumers, including principles of disclosure, insurer obligations in the event of adverse actions, and policyholder appeal and error correction processes.
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