Insurers Battling Credit-Scoring Issue

By E.E. Mazier

NU Online News Service, March 5, 3:52 p.m.EST?The insurance industry's battle against restraints onconsumer credit information is at a fever pitch as lawmakers inseveral states rush to push through bills before the end oflegislative sessions.

Assessing the effect of the insurers' efforts so far, SeanMcManamy, AIA director of public affairs for the Washington,D.C.-based American Insurance Association, declared that overall"we're holding our ground."

He said the industry's level of success came despite theprogress of some of these bills and the fact that credit scoringhas "become a political issue."

Late last week in Alaska, a Senate committee approved SenateBill 320, which prohibits insurers from using credit-basedinsurance scores after amending the bill to make it apply to allinsurance. SB 320 previously applied only to motor vehicleinsurance.

As amended, SB 320 now mirrors the prohibition on the use ofcredit information contained in SB 286 and House Bill 395, notedthe National Association of Independent Insurers, which is based inDes Plaines, Ill.

Yet another bill in Alaska, HB 476, would prohibit the use ofcredit information in determining an auto insurance premium, theNAII added.

Also late last week, the House Insurance Committee in Georgiaunanimously approved legislation that, trade groups say, has thepotential to reduce the availability and affordability of autoinsurance in the state.

According to the Washington, D.C.-based American InsuranceAssociation, HB 1115 would:

? Require approval of credit scoring models by the InsuranceCommissioner.

? Prohibit use of a credit report or score as the sole basis fordeciding whether to underwrite, cancel or otherwise terminate anautomobile policy, and also would prohibit the use of creditinformation to non-renew a policy.

? Require a consumer's written authorization to use a creditscore.

? Require insurers to establish an appeals process for consumerswho experience an adverse action and to issue several othermandatory notices and communications.

Dick Dorsey, AIA southeast region vice president, said the bill"represents death by a thousand cuts." He surmised that "fewinsurers will be willing to endure its maze of legislative andregulatory requirements in order to use credit as an underwritingand rating tool in Georgia."

At the same time, in Utah, the Senate Transportation and PublicSafety Committee approved HB 110, which would ban insurers' use ofcredit scores in auto insurance policies.

More specifically, the current version of HB 110 would ban theuse of credit scores in the determination of eligibility,underwriting, renewal, non-renewal and termination of policies. Italso would limit the use of credit scores in the rating process,reported the AIA.

HB 110 also would ban independent agents from using creditscores, the AIA said.

But direct writers, governed by the federal Fair CreditReporting Act, would be able to continue using credit scores as aloss predictor in Utah. The federal statute permits the use ofcredit reports for insurance underwriting.

"We believe that senators understand the unfair competitiveadvantages that would be created if the bill were approved in itscurrent form," said Mark Sektnan, AIA assistant vice president,western region.

"We are working very closely to craft amendments that willresolve this problem before the bill is heard on the Senatefloor."

The Utah legislature is set to adjourn tomorrow.

According to lists kept by the NAII and the Indianapolis-basedNational Association of Mutual Insurance Companies, the issue ofcredit scoring is being or has been considered in 23 legislaturesso far this year.

In total, legislatures in 42 states are currently in session,while sessions in Louisiana and North Carolina will not conveneuntil late April or early May. Lawmakers in the remaining states ofArkansas, Montana, Nevada, North Dakota, Oregon and Texas do notmeet in this even-number year.

Robert Zeman, vice president and assistant general counsel ofthe NAII, identified Washington, Utah, Missouri, Minnesota,Indiana, Idaho and Georgia as the states closest to enacting"onerous legislation" that would affect whether and how insurerscan use consumer credit information for underwriting or ratingpurposes.

David Snyder, assistant general counsel for the AIA, said absent"continued effort to achieve a fair middle ground," great damagewould be done to the competitiveness of the market in those states,harming both consumers and agents.

Neil Allderedge, manager of state relations for NAMIC, notedthat measures in Colorado and Virginia died, while a bill in SouthDakota was tabled in the House Commerce Committee.

The AIA believes that both a house bill and a senate bill inIndiana are also now dead. The House Insurance Committeechairperson tacked credit language onto a Senate health bill, "butwe think that germaneness issues are going to arise when the billgoes back to the Senate," said the AIA's Mr. McManamy.

Speaking in terms of what is happening nationally, he statedthat "given the political landscape, I think that we've been ableto reach some reasonable compromise in a lot of states."

While the industry is "not getting 100 percent" of what itwants, it has nevertheless been able to retain the use of thecredit-insurance tool in a "useful" form, Mr. McManamy stated.

He pointed out that credit-scoring bills in many states firstsaw light as outright bans.

"While that's still alive in a few states, for the most part,through a process of education with legislators and regulators andopen dialogue with agents' groups, we've been able to reign that ina little bit and find some areas of compromise we can all livewith," he stated.

The states where "the more severe bills" are still in play arethose where that educational process has not moved along as much asin other states, he said.

Meanwhile, antagonism is rising as both proponents and opponentsof credit scoring pitch their positions.

NAII recently accused the Minnesota Department of Commerce,which regulates insurance, with using the consumer educationsection of its Web site to "spread disinformation regardinginsurers' use of credit-based insurance scores."

The Department of Commerce has included information aboutinsurance scoring in the consumer tips section of its Web site.

The Web site states in part, "The Minnesota Department ofCommerce questions whether a person's credit history can accuratelypredict the person's driving skill, insurance claims activity orinsurability."

"Commerce Commissioner Jim Bernstein believes that Minnesota lawmust be changed," the site continues. It states that while the lawdoes not prohibit insurance credit scoring if used properly withother underwriting criteria, "it has yet to be determined if creditscoring discriminates against minorities, the elderly, the poor orother groups."

Finally, the site states that "the burden is on the insuranceindustry to demonstrate that credit scoring does not single out anyone class of people."

Laura Kotelman, NAII counsel, declared, "We are outraged thatthe Department of Commerce would use what should be objectiveconsumer information as a tool in its lobbying efforts.

"Commerce Director Bernstein has failed to be a true protectorof the public interest and is now using taxpayer dollars tocampaign for his agenda," Ms. Kotelman continued. "This type ofcommunication is inappropriate and goes beyond his role asregulator," she said.