Regulator Blasts NAII Credit Score Beef

By E.E. Mazier

NU Online News Service, March 6, 4:17 p.m.EST?Minnesota's insurance regulator is blasting a tradegroup for describing his views on insurer use of credit scores asharmful consumer "disinformation."

Department of Commerce Commissioner Jim Bernstein called thecomments by the National Association of Independent Insurers, whichis based in Des Plaines, Ill., " completely off the wall."

The NAII's remarks in a press release came in response to thefact that the Department now includes information about insurancescoring on a section of its Web site.

The text describes what credit scores and insurance scores are.It also states that sometimes "insurance policies are not renewedbecause of a low credit score, even though no claim has been filedby the policyholder and premiums have been paid on time."

Mr. Bernstein said that he decided to include the information onthe Web site because the Department is receiving 40 to 50 calls aweek from insurance consumers asking "why their credit score isrelevant to their increase in insurance or in some cases to thecancellation of auto insurance."

Noting that insurer use of credit scores has been spreading forsome time, Mr. Bernstein said that the practice is"abominable."

In his view, "there is no reason to do credit scoring," whichhas a "negative impact" on consumers in his state.

He estimated that about 15 to 16 percent of Minnesotans areseeing lower rates as a result of their credit scores. At the sametime, he suggested that about 60 percent of the state's insuranceconsumers are paying more, which is "unfair."

Mr. Bernstein also dismissed as "patently false" declarations bytrade groups that disallowing credit scores as an underwriting orrating tool will lead to good risks subsidizing bad risks.

"People do go through trauma in their lives --the loss of a job,illness, a death," Mr. Bernstein observed.

He pointed out that a single event in a person's life, such as along-ago bankruptcy or the loss of a small claims court caseresulting in an adverse public judgment, can be "absolutely lethal"to a consumer's credit score.

The NAII criticized the Department Web site also for failing toinclude information from insurers that purports to demonstrate aconnection between poor scores and poor claims histories.

"I have asked the industry repeatedly to provide an explanationof why the credit score impacts a person's ability to operate amotor vehicle safely or responsibly, or to maintain their property"in the case of homeowners insurance, Mr. Bernstein replied.

He declared that the reason he has not received a satisfactoryexplanation is that "frankly there is nothing."

While acknowledging that there is a statistical correlationbetween credit score and probability of filing a claim, hedismissed this as "spurious." He said that the mere fact of acorrelation in data does not mean that there is "a relationshipbetween the two variables."

Without an explanation of the relationship from the industry, "Iam not going to allow credit scoring to take root in Minnesota asdeeply as it has," Mr. Bernstein stated.

"That's why we've asked to ban the practice here in Minnesota,"he said.

In fact, the department Web site asks consumers to contact theirstate lawmakers "and encourage them to reform our credit scoringlaws to protect consumers from being unfairly penalized" byinsurers.

Mr. Bernstein said this was important because of acredit-scoring bill currently moving through the legislature, whichhe predicted will pass.

He explained that while the bill does not outright ban insureruse of credit scores, it places "significant restrictions" on howthe credit information can be used.

The sponsor of the legislation, Rep. Gregory M. Davids, R-Preston, chairman of the House Commerce, Jobs and EconomicDevelopment Committee, is an insurance agent, Mr. Bernsteinnoted.

As such, Mr. Davids has seen first hand "how abusive thispractice is to his clients and perspective clients," Mr. Bernsteinsaid.

Mr. Bernstein sits on the National Association of InsuranceCommissioners' Credit Scoring Working Group, which has been probingthis issue on a national level.

He noted that he has not received any calls from consumers orinsurance agents in his state asking that credit scoring be keptbecause "it's a great and wonderful thing.'"

In fact, he said that credit scoring "is nothing more than a wayfor the insurance industry to extract more premium."

The Web site states that the Department "questions whether aperson's credit history can accurately predict the person's drivingskill, insurance claims activity or insurability."

Insurance trade groups have suggested that the credit scoreissue has been politicized by regulators and legislators who see itas a way to connect with the voters at re-election time.

But Mr. Bernstein pointed out that he was appointed by Gov.Jesse Ventura.

"I'm not running for anything here in Minnesota, and my boss,Gov. Ventura, hasn't made a decision about running again," Mr.Bernstein said

He added that the governor has not even campaigned on the creditscoring issue.

Finally, Mr. Bernstein said that trying to rein in insurer useof credit scores is not about politics but about "doing the rightthings for consumers here in Minnesota."