Minn. Credit Score Law Seen As Insurer's Reprieve

By E.E. Mazier

NU Online News Service, May 8, 10:43 a.m.EST?The insurance regulator of Minnesota views the creditscoring bill recently signed into law in his state as a merereprieve for insurers.

Although the law signed by Gov. Jesse Ventura does not baninsurer use of consumer credit scores outright, Commissioner JimBernstein said he is glad to have "a tough law that has teeth."

The new statute prohibits insurers from rejecting, canceling ornot renewing automobile or homeowners insurance policies solely onthe basis of a consumer's credit scores, which is a number derivedfrom an individual's credit history.

The statute also requires insurers to produce evidence thattheir use of credit scoring is legitimate, lawful and fair.

Mr. Bernstein has stated that he intends to "set the bar veryhigh" for insurers wishing to continue the practice of using a caror homeowner's credit history as an indicator of whether the ownerwill file a claim.

"We're going to be asking companies not just to show us theformula, not just the weights and variables that they use, but toprovide a definitive explanation as to why credit scoring works,"he declared.

Mr. Bernstein said it is "high time" the insurance industrylooked at credit scoring and its impact on the public.

He added that in accordance with the new law, insurancecompanies will have to back up their long-standing claim that aconsumer's credit score reflects his or her ability to operate amotor vehicle or maintain property safely and responsibly.

The industry, he said, insists that, "individuals with highercredit scores are more responsible with their financial behaviorand that this translates into their driving or theirresponsibilities as homeowners?but we have seen no other evidencethat that is true," he stated.

Mr. Bernstein said he will require each company to file with hisdepartment the methodology, rationale and factors used in acredit-scoring system. He also stated that credit-scoring methodsthat incorporate gender, race, nationality or religion in theirmodel will be prohibited.

Mr. Bernstein stated that one point he has continued to press ishow a random event such as a rainstorm, hailstorm or windstorm can"know who has a better credit score and who doesn't."

Mr. Bernstein also revealed that legislative leaders inMinnesota have made it clear that if insurers cannot "deliver asthey say," the legislator will "be back next year with a ban" onthe use of credit scores.