Multi-State Credit Score Study May Be History

By Daniel Hays

NU Online News Service, Aug. 3, 4:08 p.m.EDT?Regulators, threatened with legal action afterembarking on a multi-state study of insurer use of creditinformation for rating purposes, may drop their effort,National Underwriter has learned.[@@]

An alternative arrangement being discussed would have insurersprovide the data being sought by the states to federal authoritiesfor further study.

"We are working to come to an agreement," said Randy McConnell,a spokesman for the Missouri Insurance Department. Missouri andseven other states involved were warned last month by the PropertyCasualty Insurers Association of America that their inquiry couldspark a court fight.

Nat Shapo--the attorney and former Illinois insurancecommissioner who represents PCI and two other trade groups in theirfight to block any study by regulators--said today he had nocomment about a possible deal.

According to Mr. McConnell, because litigation could impede thestudy, and "in the interest of getting something produced of valueto consumers," discussions are underway to reach a deal.

He said the agreement being discussed would involve having theinsurers give the information the states were seeking over to theFederal Trade Commission, which is under a Congressional mandate todo its own study of credit scoring.

If an agreement is reached, that study would be used in lieu ofthe multistate study, Mr. McConnell said.

The deadline for insurers to turn in the data requested for thestudy is Aug. 20.

Robert Zeman, senior vice president for the Des Plaines,Ill.-based PCI, announced last month that as the deadline for thedata call neared, the organization would look at options,"including a potential legal action."

PCI as well as National Association of Mutual InsuranceCompanies and the American Insurance Association argue that theregulators are acting outside their legal authority.

The study has been provoked by concerns that credit scoringunfairly impacts minorities and fails to account for a varietyindividual circumstances that that can skew the results of a credithistory.

Insurers argue that under law they can use the process to setrates as long as they underwrite objectively, regardless of how theprocess impacts consumers.

According to PCI, only three jurisdictions--California, Hawaiiand Maryland--have some form of credit scoring ban, and efforts tosecure a prohibition in other states, including Missouri, havefailed.

Insurers support legislation based on a model credit scoringbill drafted by the National Council of Insurance Legislators,which 20 states have adopted in some form.

The latest among the states to adopt the NCOIL model was NewYork. The measure there was approved June 22, and became lawwithout the governor's signature on July 27.

Under the New York measure, carriers are prohibited from usingincome, gender, address, ZIP code, ethnic group, religion, maritalstatus or nationality as a factor in credit scoring.

It also forbids denying a policy for personal lines insurancesolely based on credit information, would not permit its use todeny a renewal, and its score would have to be recalculated if aconsumer requested it.

Consumers must be notified of adverse action based on a creditscore, and the factor could not be used against those with nocredit history.