Verbal War Kicks Off Credit Scoring Hearing

By Daniel Hays

NU Online News Service, March 9, 10:00 a.m.EST? Massachusetts today becomes the latest battlegroundfor insurers fighting to preserve their use of credit backgroundsto rate customers.[@@]

There will be a hearing in Boston today over the merits of aState Senate bill that would ban credit scoring for auto andhomeowner coverage. In advance of the proceedings, an insurancetrade group accused the measure's sponsor of "grandstanding."

Sen. Charles Shannon, D-Winchester, in announcing the JointCommittee on Insurance session said it "promises to be a raucoussetting, with testimony from victims, insurance agents, consumerinterest groups and many other state legislators who have signedonto the Shannon bill[S2093]."

In Boston, Frank O'Brien, vice president with Des Plaines,Ill.-based Property Casualty Insurers of Association of America,promised to be on hand to oppose the measure with other industrygroups. "We believe the use [of credit scoring] is both appropriateand desirable," he said.

In advance of the hearing, he accused Mr. Shannon of "trying tostir emotions by promising a ?raucous setting."

Mr. Shannon, in what he referred to as a "broadside" againstinsurers, called credit scoring "one of the most blatantlyanti-consumer practices that I have seen within this, or anyindustry.

"Credit Scoring has created an unfair rate setting forconsumers, and has forced a disproportionate number of low incomeand minority residents to pay higher premiums." He called insurers,"obsessed with a profit-at-all-costs mentality."

"I have yet to hear a reasonable argument from them on how theycan justify equating an individual's credit with a propensity forhigher claims filing," he said.

Mr. O'Brien said that in "virtually every other state where theissue has come up, we have moved away from a credit ban. It hasbecome clear it [credit scoring] has actuarial significance."

PCI predicted that the bill would create even more stress for astate they describe as having a "troubled insurance market."

Senate Bill 2093 seeks a total ban on the use of credit-basedinsurance scores in auto and homeowners insurance ratemaking.

Mr. O'Brien, referring to Mr. Shannon's announcement, predictedthe insurance committee would "ignore such grandstanding, listen tothe facts, and consider the real impact that a ban on the use ofcredit-based insurance scores will have on an already stressedmarketplace."

He said that in Maryland there have been reports that afterinsurance scoring for homeowners was banned, homeowners who hadreceived discounts because of good insurance scores were facingdouble-digit rate increases as insurers adjusted rates to meet therequirements of the ban.

In Missouri, a recent insurance department report found thatcredit scoring unfairly impacted consumers who were poor andmembers of racial minority groups. Insurers attacked the report forfailing to examine the validity of the process as an actuarialtool. The state's governor pointed to the findings as a reason tourge a credit scoring ban.

Missouri with 10 other states is in the process of doing yetanother credit scoring study.

PCI, in arguing against the Massachusetts bill, said Congressrecently looked at the issue and continued to allow the use ofinsurance scores as part the Fair and Accurate Credit TransactionsAct of 2003 (FACT).

"It is important to note that there are significant differencesbetween the scores used in insurance rating and underwriting andthose used in determining the amount, availability and/or price ofcredit products that lending institutions will make available,"said Mr. O'Brien.

"The most significant of these differences is that insurancescoring models do not include or evaluate an applicant's income,while models used for lending purposes do use income. Those whohave attacked the use of insurance scoring are either unaware of,or have chosen to deliberately ignore this key difference."

According to Mr. O'Brien, current Massachusetts law expresslypermits credit bureaus and other agencies that compile creditinformation to make such credit information available to others foruse ?in connection with the underwriting of insurance involving theconsumer.'"

PCI said its member companies write 24.2 percent of the autoinsurance in Massachusetts and 48.7 percent of the homeownersinsurance. The National Association of Mutual InsuranceCompanies.

In other action yesterday on the credit scoring front,
the National Association of Mutual Insurance Companies called onthe National Association of Insurance Commissioners to halt itseffort to create a "best practices" interpretation
document on the use of insurance scores.

NAIC maintained that statutes adopted in 30 states have "largelyended any controversy surrounding the use
of this proven, valuable tool" and creation of a best practicesguide would "undermine the law in those states," NAMIC said.