PCI Says Insurers Ahead In Credit Score Fight

By Daniel Hays

NU Online News Service, June 17, 10:48 a.m. EDT?As the nation's legislatures end their sessions for the summer, an insurance trade group reported that legislation to prevent carriers' controversial use of credit background to assess potential customers did not pass in any state house.[@@]

Property Casualty Insurers Association of America, which tracks the issue, said only three states?California, Hawaii and Maryland?have some form of credit scoring ban, and Massachusetts and Michigan are considering one.

PCI said legislation addressing insurance scoring was introduced in 26 states this year.

Insurers secured "victories," PCI said, in Tennessee, Iowa and Colorado where legislatures passed the model act developed by the National Council of Insurance Legislators, which does not ban the practice but prevents its use as sole criteria for underwriting, requires disclosure and sets other restrictions.

Three other states, Arizona, Maryland and Washington, modified existing laws relating to the use of credit information,

PCI said 19 states have enacted legislation based on the NCOIL model over the past two years. That number, PCI spokesman Jeffrey Brewer said, is subject to interpretation because the model's use can vary from state to state with different modifications either adding to or subtracting from the model's language.

Opponents of credit scoring say it unfairly impacts minorities and fails to account for a variety of individual situations that can improperly impact a credit history check. A 10-state study of the process is currently underway, led by Missouri.

That state's legislature resisted a call by the governor this year to ban the practice based on Missouri Insurance Department research that found credit scoring unfairly impacted minority population areas.

Insurers said the study failed to examine the underwriting experience that supports use of credit scoring.

"When presented with all the facts about the accuracy and objectivity of insurance scores, lawmakers across the country consistently reach the conclusion that consideration of such scores benefits most consumers," said Robert Zeman, senior vice president, insurance and regulatory affairs for PCI.

PCI said that "in addition to the three legislative victories this year, New Jersey's insurance commissioner issued consumer protection guidelines for insurers to follow when using insurance scoring and the Indiana attorney general ruled that the state insurance department had exceeded its authority in its restrictive interpretation of law passed in 2003."

By PCI's count, Alabama, Arkansas, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Mississippi, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, Tennessee and Texas have laws based on the NCOIL model.

States that recently enacted a law or adopted a regulation and revisited the issue this year included Alabama, Arizona, Colorado, Indiana, Louisiana, Maryland, Mississippi, Missouri, Rhode Island, Utah, Virginia, Washington and West Virginia, PCI said.

Mr. Zeman assailed the legislative action in the Massachusetts and Michigan legislatures.

"These proposals ignore the undisputed connection between credit history and losses and turn their back on the principle of cost-based-pricing. If enacted, these measures would result in lower risk consumers being forced to subsidize their higher risk counterparts through increased insurance premiums," he noted.

"It is a classic case of bureaucratic interference in the marketplace that will have a negative impact on most consumers," he continued. "PCI is doing everything we can to make sure that public policy makers, as well as consumers and the news media in those two states, understand the consequences of this approach and the benefits of a more market-driven solution."

Des Plaines, Ill.-based PCI is composed of more than 1,000 member companies.

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