With the number of home mortgage defaults and foreclosurescontinuing to soar, and a ripple effect reverberating through theauto loan and credit card sector, we are witnessing some of theworst financial conditions for consumers in history. What will bethe impact on credit scores, and on insurance prices set in part onthat rating factor?

Did this credit crisis come about due to reckless borrowing byconsumers? In some cases, yes. But the vast majority of those infinancial distress are in that position because of reckless andabusive lending practices and a dramatic decline in home valuesacross the country.

The impact of these developments on credit scores ingeneral--and insurance scores, in particular--is dramatic.Foreclosures, delinquencies, bankruptcies have all skyrocketed.Debt load is up, and reliance on nontraditional lenders hasincreased. All of these factors lower insurance scores.

When insurance scores go down, insurers get more premium asconsumers are placed in higher-cost rating tiers. The increase inpremiums to insurers typically comes without a rate filing becausethe consumer is simply moved to a higher-cost rating tier.

Another revelation from the subprime market: FICO scores--themeasure of credit risk put out by Fair Isaac Corp.--did notaccurately predict the problems with subprime loans. FICO hasrevised its lending credit scores, yet there has been norecalibration of insurance scores.

Scores that were devised in a period of low foreclosures andbetter financial conditions are being inappropriately used in aradically different financial climate.

We have also seen the introduction of nontraditional lendingcredit scores after the revelation that 20-to-25 percent of thepopulation was unscoreable with traditional methods because thatportion of the population--largely low-income and minority--simplydid not have enough information in the credit report.

New credit scoring tools are using nontraditional creditinformation, such as rent and utility payments. But again, therehas been no analogous movement or change in insurance scores.

Despite the radical increase in foreclosures, delinquencies,bankruptcies, debt and the associated decline in insurance scores,personal lines claims have not been increasing at the same pace.Since 2003, clam frequencies for property damage, collision andcomprehensive coverages have all decreased.

The bottom line is that many consumers are being penalized withhigher auto and homeowners premiums because of insurancescoring--due to lenders' reckless and abusive lending decisions,and not because of any irresponsible behavior by consumers.

And the practice is moving to health insurance with thedevelopment of medical credit scores. Surely, state insuranceregulators want to weigh in on this practice before it becomesentrenched.

Even today, lenders' business decisions continue to penalizeconsumers. Primary lenders tightened loan guidelines and redlinedhundreds of communities around the country where home values havedeclined or may decline. Lenders holding second mortgages arepreventing workout refinancing deals for consumers, thereby denyingthem a chance to keep their homes.

Just as it was lenders' business decisions that created problemsfor many consumers, it is now lenders' business decisions denyingthem opportunities to address the problem.

Bad as this is for so many consumers on the mortgage loan side,it is cruel to pile on with higher auto and homeowners insurancepremiums because of insurance scoring.

There is clearly a crisis for many consumers, who are at risk oflosing their homes and face associated financial pressures. Just asCongress and the states are taking action to help victimizedconsumers, states should do their part and, at a minimum, place athree-year ban on insurer use of consumer credit information.

The National Association of Insurance Commissioners has neverdeveloped a model law regarding the use of insurance scores. As aresult, the National Conference of Insurance Legislators' model hasbeen largely adopted in about half the states. The NCOIL modelprovides no substantive consumer protections--it is an example of"pretend" consumer protection.

But by deferring to NCOIL on this critical issue, the NAIC hasallowed the NCOIL model to define insurance scoring regulatoryoversight in many states and has enhanced NCOIL's profile becauseof the success of its model.

The NAIC has deferred to insurers on the evaluation of theimpact of insurance scoring on consumers. Instead of collectingdata and performing a rigorous analysis, the NAIC has allowedinsurers to make any claims they want to state legislators withoutany corroboration by state regulators.

In addition, the NAIC has deferred to Washington--via theFederal Trade Commission--to study the impact of insurance scoringon low-income and minority consumers. The result was a study basedon data hand-picked by the industry and a report that regurgitatedunsubstantiated insurer claims about insurance scoring.

The NAIC has deferred to the courts--the U.S. Supreme Court, inparticular--on adverse actions and ratemaking using insurancescoring. Instead of a model law that sets out a clear standard forwhen a consumer is harmed by insurance scoring, the states are nowstuck with a terrible Supreme Court decision, which includes anunenforceable standard for "neutral" scores.

And now, Rep. Luis Gutierrez, D-Ill., has introduced H.R.5633--the Nondiscriminatory Use of Consumer Reports and ConsumerInformation Act of 2008--which prohibits insurer use of consumercredit information if the FTC finds insurance scoring results inunfair discrimination or serves as a proxy for race.

So now we have a proposal to establish the FTC--a federalagency--as the organization that decides what is or is not unfairdiscrimination in insurance rating. You will excuse me if I ask,isn't that the role of state insurance regulators?

By continuing to defer to everyone else on insurance scoring,the NAIC and state insurance regulators are failing to protectconsumers and missing the opportunity to make the case forstate-based regulation.

We respectfully ask the NAIC to stop deferring to everyone elseon insurance scoring and start taking action to protect insuranceconsumers. (See the accompanying infographic for three specificsteps we would like to see the NAIC take.)

Crisis often brings opportunity. This subprime mortgage crisisand its fallout present an opportunity for the NAIC to finally andforcefully address consumer protections in insurance scoring.