NU Online News Service

SEATTLE--Regulators' interest in insurers' use ofcredit-based insurance scores produced lively reaction frominsurance association representatives and a consumer advocateduring a committee meeting on property and casualty insuranceissues.

On Monday, regulators on the Property and Casualty InsuranceCommittee at the National Association of Insurance Commissioners'(NAIC) summer meeting here reviewed actions they are taking relatedto the issue of credit scoring used in underwriting personal linesrisks.

Melvin Butch Hollowell, Michigan's insurance consumer advocate,addressed the committee to say that credit scoring is puttingpolicyholders at a disadvantage as they struggle through theeconomic crisis. Layoffs have made it difficult for some to paytheir bills, and through no fault of their own their credit scoreshave been lowered dramatically.

This is especially true in Michigan, which he noted has beendevastated by the economic downturn. He said credit scoring shouldultimately be banned as a part of underwriting criteria because ofthat and questions of the accuracy of the scores.

Connecticut Insurance Commissioner Thomas R. Sullivan disputedHollowell's characterization of insurance scoring, saying it is avaluable tool for insurers. He noted that if the use of creditscores was so detrimental to auto policyholders, he would not see ahistorically low number of insureds in the state's residual market,which is only a fraction of the 1.2 million vehicles insured in thestate.

He added that the state's experience shows "no discriminatorybehavior" from the use of credit scores.

Hollowell countered that the use of credit scoring is muchbroader in Michigan than in Connecticut, accounting for thedifference.

He also blamed a recent state Supreme Court decision that hesaid stripped the state commissioner's authority to limit the useof credit scoring.

David Snyder, vice president and associate general counsel forthe American Insurance Association, later disputed Hollowell'scharacterization of the court's decision, telling the committeethat the court determined the department had overreached in its authority.

Discussion of a model law to regulate insurance scoring vendorsbrought a sharp exchange between Illinois Insurance DirectorMichael T. McRaith, the committee chairman, and Alex Hageli,director of personal policy for the Property Casualty Insurers ofAmerica, who debated the necessity of the law.

In an exchange that at times brought laughter from the audience,Hageli contended that insurance regulators should not be regulatingan entity that is already regulated by the federal government.

McRaith countered, taking a prosecutorial tone with Hageli,questioning him as to why insurance regulators should not have arole overseeing a reporting agency that can have a serious impacton consumers.

Hageli later issued a statement saying PCI was disappointed, butnot surprised, that the committee went ahead with development ofthe model law. He said the law is unnecessary because credit scoresare already heavily regulated. He further criticized the committeefor its data call on credit scoring.

The committee said the call would be voluntary and theinformation collected would be confidential and released at somepoint in the aggregate.