NU Online News Service, April 30, 1:47 p.m.EDT

Credit scoring supporters and detractors were making theirarguments at a hearing today before the National Association ofInsurance.

The session was held jointly by the NAIC Property-CasualtyCommittee and the Market Regulation and Consumer Affairs Committeein Crystal City, Va.

The NAIC Executive Committee authorized the two committees to goahead with the hearing at the NAIC Spring Meeting last month in SanDiego.

Florida Commissioner Kevin McCarty said during the SpringMeeting that the goal of the hearing is to examine how insurer useof credit history is affecting consumers in today's difficulteconomic environment. Both he and Oklahoma Commissioner Kim Hollandtold the Executive Committee there is no motive behind the hearingaside from gathering information on the issue.

The National Conference of Insurance Legislators (NCOIL) sent aletter in advance of today's hearing arguing that its Model ActRegarding Use of Credit Information in Personal Insurance, which itput forth in 2002, "was and remains a timely and effective responseto consumers who feel blindsided by insurer use of their creditinformation…."

NCOIL added that it will consider a revision at its July SummerMeeting "to target consumers whose fallen credit is traceable tothe financial crisis not of their making." The NCOIL letter adds,though, that the model act already contains extraordinary lifeevents language.

"We as legislators have a duty," the letter states, "to promotebalanced public policy that safeguards our constituents frompossible abuse. The NCOIL model act – which evolved through twoyears of special sessions, model drafts, and many hours of debatewith all key players – does just that. It has become the standardfor state insurance scoring policy…."

Insurer associations, argue that credit scoring is anactuarially sound predictor of risk, and to rule it out would meangood risks would be forced to subsidize bad risks.

Consumer groups respond that the use of credit information forthe purpose of determining rates discriminates against low-incomeand minority consumers because of the racial and economicdisparities inherent in scoring.

Robert P. Hartwig, president of the Insurance InformationInstitute said in prepared testimony that, "a silver lining of thecurrent financial crisis is a change in the credit profile of theaverage American household wherby outstanding debt is reduced tomore manageable levels. This should lead to an improvement in thehealth of the typical consumer's (and family's) balance sheet.

"It is a common misconception that during a recession virtuallyall consumers's credit scores, and hence insurance scores willfall," he said.

Mr. Hartwig added that "Insurance scoring is a proven, accurate,objective and consistent risk assessment tool used widely in theunderwriting of auto and homeowners insurance. The data supportingits use are statistically irrefutable, and the benefits toconsumers are significant,"

Speaking to the effects of the struggling economy, the insurergroups have noted that LexisNexis reports that analysis of recentinsurance score trends does not reflect an overall deterioration ofscores. "In fact, of the millions of scores processed byLexisNexis, a slight score improvement has been recorded over thepast five years," the insurer groups said.

The insurance associations also pointed to numerous studiesconducted by departments of insurance of various states, as well asthe Federal Trade Commission (FTC). The insurer groups said thesestudies show that credit-based insurance scoring is an objective,reliable underwriting and/or rating tool that benefits a majorityof consumers.

Four consumer groups have previously argued that studies by theMissouri and Texas departments of insurance found that insurancescoring discriminates against low income and minorityconsumers.

"The Missouri study concluded that a consumer's race was thesingle most predictive factor determining a consumer's insurancescore and, consequently, the consumer's insurance premium," theysaid.