Verbal War Kicks Off Credit Scoring Hearing

By Daniel Hays

NU Online News Service, March 9, 10:00 a.m. EST? Massachusetts today becomes the latest battleground for insurers fighting to preserve their use of credit backgrounds to rate customers.[@@]

There will be a hearing in Boston today over the merits of a State Senate bill that would ban credit scoring for auto and homeowner coverage. In advance of the proceedings, an insurance trade group accused the measure's sponsor of "grandstanding."

Sen. Charles Shannon, D-Winchester, in announcing the Joint Committee on Insurance session said it "promises to be a raucous setting, with testimony from victims, insurance agents, consumer interest groups and many other state legislators who have signed onto the Shannon bill[S2093]."

In Boston, Frank O'Brien, vice president with Des Plaines, Ill.-based Property Casualty Insurers of Association of America, promised to be on hand to oppose the measure with other industry groups. "We believe the use [of credit scoring] is both appropriate and desirable," he said.

In advance of the hearing, he accused Mr. Shannon of "trying to stir emotions by promising a ?raucous setting."

Mr. Shannon, in what he referred to as a "broadside" against insurers, called credit scoring "one of the most blatantly anti-consumer practices that I have seen within this, or any industry.

"Credit Scoring has created an unfair rate setting for consumers, and has forced a disproportionate number of low income and minority residents to pay higher premiums." He called insurers, "obsessed with a profit-at-all-costs mentality."

"I have yet to hear a reasonable argument from them on how they can justify equating an individual's credit with a propensity for higher claims filing," he said.

Mr. O'Brien said that in "virtually every other state where the issue has come up, we have moved away from a credit ban. It has become clear it [credit scoring] has actuarial significance."

PCI predicted that the bill would create even more stress for a state they describe as having a "troubled insurance market."

Senate Bill 2093 seeks a total ban on the use of credit-based insurance scores in auto and homeowners insurance ratemaking.

Mr. O'Brien, referring to Mr. Shannon's announcement, predicted the insurance committee would "ignore such grandstanding, listen to the facts, and consider the real impact that a ban on the use of credit-based insurance scores will have on an already stressed marketplace."

He said that in Maryland there have been reports that after insurance scoring for homeowners was banned, homeowners who had received discounts because of good insurance scores were facing double-digit rate increases as insurers adjusted rates to meet the requirements of the ban.

In Missouri, a recent insurance department report found that credit scoring unfairly impacted consumers who were poor and members of racial minority groups. Insurers attacked the report for failing to examine the validity of the process as an actuarial tool. The state's governor pointed to the findings as a reason to urge a credit scoring ban.

Missouri with 10 other states is in the process of doing yet another credit scoring study.

PCI, in arguing against the Massachusetts bill, said Congress recently looked at the issue and continued to allow the use of insurance scores as part the Fair and Accurate Credit Transactions Act of 2003 (FACT).

"It is important to note that there are significant differences between the scores used in insurance rating and underwriting and those used in determining the amount, availability and/or price of credit products that lending institutions will make available," said Mr. O'Brien.

"The most significant of these differences is that insurance scoring models do not include or evaluate an applicant's income, while models used for lending purposes do use income. Those who have attacked the use of insurance scoring are either unaware of, or have chosen to deliberately ignore this key difference."

According to Mr. O'Brien, current Massachusetts law expressly permits credit bureaus and other agencies that compile credit information to make such credit information available to others for use ?in connection with the underwriting of insurance involving the consumer.'"

PCI said its member companies write 24.2 percent of the auto insurance in Massachusetts and 48.7 percent of the homeowners insurance. The National Association of Mutual Insurance Companies.

In other action yesterday on the credit scoring front,
the National Association of Mutual Insurance Companies called on the National Association of Insurance Commissioners to halt its effort to create a "best practices" interpretation
document on the use of insurance scores.

NAIC maintained that statutes adopted in 30 states have "largely ended any controversy surrounding the use
of this proven, valuable tool" and creation of a best practices guide would "undermine the law in those states," NAMIC said.

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Verbal War Kicks Off Credit Scoring Hearing

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