Insurers Attack NAIC Credit Score Study

By Daniel Hays

NU Online News Service, Sept. 15, 12:17 p.m. EDT,Chicago?Representatives of two insurance trade groupsmeeting with a panel of state insurance commissioners here havedenounced the idea of regulators possibly conducting a study ofwhether use of credit background records has an unfair impact onminorities.

Their angry complaints were made at Saturday's NationalAssociation of Insurance Commissioners fall meeting during asession of the Industry Liaison Committee. Officials said a vote ispossible on the issue today when a unit of the Market Regulationand Consumer Affairs Committee is due to hold a session.

Robert Zeman, National Association of Independent Insurerssenior vice president, called it a "very flawed proposal." He wasjoined in his protest by Roger Schmelzer, representing the NationalAssociation of Mutual Insurance Companies.

Mr. Schmelzer suggested that if the NAIC were to go along withsuch a study that it "will lead to other questions about thebusiness of insurance" and could eventually lead to an "eroding ofthe underwriting process."

He told the panel that only one state so far has elected to baninsurance scoring and that to start the study would undermine thework of state legislatures.

The way the issue has been dealt with "is political," said Mr.Schmelzer.

Mr. Zeman said the proposal was flawed from a legal, technicaland public policy perspective and driven by politically motivatedcommissioners.

The issue of credit scoring was penciled in for discussion bythe Consumer Liaison Committee on its Saturday meeting agenda aswell, but the topic was never reached.

Missouri Insurance Director Scott B. Lakin, who chaired theConsumer Liaison panel, said he expected credit record use wouldcome up this afternoon at the Market Regulation and ConsumerAffairs Committee and the study, which he supports, might possiblybe voted on.

The trade group campaign against the proposed study included aSunday press briefing by the NAII. The trade group releasedexcerpts of some testimony due to be delivered today to theRegulation and Consumer Affairs Committee by a former regulator whoargued the study fails to address legal standards of insurance.

The testimony is from Nathanial S. Shapo, a former director ofthe Illinois Insurance Department.

According to Mr. Shapo, now a partner in a law firm, "Adisparate impact study on credit is unnecessary within the contextof insurance regulation, as the NAIC has not disputed and does notappear to be disputing credit's value as a useful innovation inpredicting risk of future loss.

"In moving forward with such a study, the NAIC would be actingon a different set of premises about unfair discrimination thanthose that have prevailed for decades..without an articulatedrationale for treating one actuarially justified rating factordifferently from other actuarially justified factors."

He said the study would counter positions the NAIC has taken inlegal cases.