San Francisco

Regulators are poised to begin exploring how to gather data oninsurer use of credit information to determine premiums, and mighteven expand their study to examine other rating factors inunderwriting.

That's the word that came down from the chair of the NationalAssociation of Insurance Commissioners Property and CasualtyCommittee at the group's meeting here this month.

The committee would like to collect information and develop areport on the controversial credit scoring issue by the thirdquarter of 2010, according to Illinois Insurance Director andCommittee Chair Michael McRaith.

During a committee meeting at the NAIC Winter National Meetinghere, Mr. McRaith said he plans to schedule a public conferencecall in January, during which regulators will discuss how toapproach developing a set of questions designed to procureinformation from individual insurers on how they use consumercredit information.

Connecticut Insurance Commissioner Thomas Sullivan, recalling aquestion he asked in March when the P&C Committee and MarketRegulation and Consumer Affairs Committee first sought permissionto hold a joint hearing on credit-based insurance scores, asked:"What would be our endgame [in further examining the credit issue]?What are we trying to get at?"

Mr. McRaith responded that the purpose of gathering suchinformation and producing a report will be to discern the rhetoricfrom the facts in order to provide accurate information to thosewho need it.

Credit scoring has been attacked by opponents as failing toaccount for major, unusual expenses such as large medical bills, aswell as unfairly impacting low-income and minority consumers.

Insurers respond that credit scoring is a proven underwritingtechnique that rewards those who are good risks, and that there isa correlation between credit and insurance risk.

Mr. McRaith said if there is going to be "significant change" inthe states on credit-based insurance scores, it will likely bethrough laws passed by state legislatures.

"My view is the service we should provide is information," hesaid, adding that regulators cannot attempt to resolve the socialor policy questions surrounding the credit issue, "but we caninform those who have that responsibility with some objective,factual data about the impact on consumers."

One area the committee wants to understand better is the rangeof impact of insurance scores on consumers.

South Carolina Insurance Director Scott Richardson said hisdepartment did a data call in his state asking how insurers usedcredit information, noting he was "stunned" at the impact credithad on rates.

For homeowners insurance, Mr. Richardson said credit accountedfor savings in a range of 7.6 percent to 51 percent per policy forconsumers that benefited from their insurance score, and asurcharge of 1 percent to 86 percent for consumers who wereadversely affected.

For auto insurance, Mr. Richardson noted, consumers benefited upto 36 percent per policy, and were adversely impacted by a range of12 percent to 99 percent.

He stressed that he did not know how many people were in theextreme ranges, but indicated that is information regulators shouldseek to collect.

Commissioner Sullivan, while offering support for the collectionof data, wondered where it ends, and whether the committee willstart examining other areas beyond credit. "This could be endless,"he said.

In fact, Mr. Richardson pointed out that regulators may want toget a handle on what factors insurers use to determine rates beyondcredit. He said the technical aspects of underwriting have gottento a point "where we need to talk about what is fair."

Next September, Director McRaith indicated he would like to takea look at marital status as a rating factor.

For now, however, Mr. McRaith said the goal is to "identifyquestions that we want answers to, and not with the intent ofattacking or antagonizing an industry or any one company."

A second component, he said, would be to explore regulatingadvisory companies that develop credit-based insurance scores. Todo that, Mr. McRaith said the NAIC would have to develop a modellaw for states that don't have the authority to regulate thesecompanies.

Dave Snyder, American Insurance Association vice president andassociate general counsel, said the issue of credit has beenreviewed and re-reviewed and has been shown to be compliant withthe law and beneficial to the market and a large majority ofconsumers.