Minneapolis

After pressing industry organizations for specifics on how theuse of credit history in determining policy rates affects certaingroups of people, the nation's insurance regulators criticizedrespondents for not being specific or forthcoming enough with theiranswers.

The exchange came during a joint committee hearing at theNational Association of Insurance Commissioners meeting here lastweek.

Two NAIC committees–Property and Casualty, as well as MarketRegulation and Consumer Affairs–met jointly to review informationobtained during their April 30 public hearing on credit scoring.The hearing was called for and approved at the NAIC's prior meetingin March.

During the NAIC plenary session at the March meeting,Connecticut Insurance Commissioner Tom Sullivan questioned what the"end game" of the joint committee hearing would be, and was told byFlorida Commissioner Kevin McCarty and Oklahoma Commissioner KimHolland there was no agenda beyond gathering information on thecontroversial issue.

During the joint meeting last week, however, regulators saidthey intend to discuss "next steps" that could include theconsideration of ideas such as:

o Standardizing models insurers use for developing insurancescores.

o Increasing transparency regarding how insurers use creditinformation that impacts consumers.

Ultimately, time ran out at the meeting before regulators couldsettle on concrete steps, and they agreed to hold a conference callin the near future to discuss the ideas.

Industry associations at thehearing defended the use of credit information, stating thatinsurers are able to write risks they would not otherwise entertainbecause the use of credit adds a predictor of risk they did nothave before.

While part of the controversy around credit scoring focuses ongroups that may see a disparate impact by the rating tool's use,David Snyder, vice president and assistant general counsel of theAmerican Insurance Association, noted that some groups would seerate increases if the use of credit was banned.

Indeed, he said that 80 percent of people aged 60 and olderwould see rate hikes. The industry representatives also said 90percent of consumers see either no effect or lower rates fromcredit scoring.

But regulators pressed Mr. Snyder and Neil Alldredge, vicepresident of state and policy affairs for the National Associationof Mutual Insurance Companies, on who was represented in theremaining 10 percent.

A representative from the California Insurance Department wasunsatisfied with Mr. Snyder's answer that the 10 percent are the"worst-risk policyholders," pointing out that Mr. Snyder wasspecific in citing the elderly as beneficiaries but vague on thoseadversely impacted.

Pennsylvania Insurance Commissioner Joel Ario called intoquestion Mr. Alldredge's response that the 10 percent is made up ofpeople across all ethnicities and income groups.

Mr. Ario said there is "clear evidence" that low-incomeindividuals and minorities make up a disproportionate part of the10 percent who see their rates go up thanks to the use of creditscoring. He also said the increases for those adversely affectedmay be significantly greater than the decreases seen by those whobenefit.

Birny Birnbaum, executive director of the Center for EconomicJustice, urged regulators to develop a model law that calls for amoratorium on the use of credit.

"There's a real need for action," he said, stating that currenteconomic conditions have created a crisis for the consumer withrespect to credit information.

He said people who are in foreclosure because of steep hikes inadjustable-rate mortgages, and those in bankruptcy because of therecession are the ones facing the brunt of the credit-relatedinsurance rate increases.

Mr. Birnbaum also expressed dismay that regulators were askingindustry representatives for information the commissioners shouldalready have. He recommended the NAIC develop a template foruniform data collection that includes information aboutapplications for insurance rather than just for policieswritten.

Insurance group representatives noted that many states haveenacted rules requiring insurers to consider extreme lifecircumstances, such as those caused by the current economy, intheir underwriting and rate-setting decisions.

They also said many insurers do not use credit information toadversely affect renewals, so customers who stayed with the sameinsurer and have been impacted by the financial crisis saw noincrease in rates because of credit history in many cases.