After pressing industry organizations for specifics on how the use of credit history in determining policy rates affects certain groups of people, the nation’s insurance regulators criticized respondents for not being specific or forthcoming enough with their answers.
The exchange came during a joint committee hearing at the National Association of Insurance Commissioners meeting here last week.
Two NAIC committees–Property and Casualty, as well as Market Regulation and Consumer Affairs–met jointly to review information obtained during their April 30 public hearing on credit scoring. The hearing was called for and approved at the NAIC’s prior meeting in March.
During the NAIC plenary session at the March meeting, Connecticut Insurance Commissioner Tom Sullivan questioned what the “end game” of the joint committee hearing would be, and was told by Florida Commissioner Kevin McCarty and Oklahoma Commissioner Kim Holland there was no agenda beyond gathering information on the controversial issue.
During the joint meeting last week, however, regulators said they intend to discuss “next steps” that could include the consideration of ideas such as:
o Standardizing models insurers use for developing insurance scores.
o Increasing transparency regarding how insurers use credit information that impacts consumers.
Ultimately, time ran out at the meeting before regulators could settle on concrete steps, and they agreed to hold a conference call in the near future to discuss the ideas.
Industry associations at the hearing defended the use of credit information, stating that insurers are able to write risks they would not otherwise entertain because the use of credit adds a predictor of risk they did not have before.
While part of the controversy around credit scoring focuses on groups that may see a disparate impact by the rating tool’s use, David Snyder, vice president and assistant general counsel of the American Insurance Association, noted that some groups would see rate increases if the use of credit was banned.
Indeed, he said that 80 percent of people aged 60 and older would see rate hikes. The industry representatives also said 90 percent of consumers see either no effect or lower rates from credit scoring.
But regulators pressed Mr. Snyder and Neil Alldredge, vice president of state and policy affairs for the National Association of Mutual Insurance Companies, on who was represented in the remaining 10 percent.
A representative from the California Insurance Department was unsatisfied with Mr. Snyder’s answer that the 10 percent are the “worst-risk policyholders,” pointing out that Mr. Snyder was specific in citing the elderly as beneficiaries but vague on those adversely impacted.
Pennsylvania Insurance Commissioner Joel Ario called into question Mr. Alldredge’s response that the 10 percent is made up of people across all ethnicities and income groups.
Mr. Ario said there is “clear evidence” that low-income individuals and minorities make up a disproportionate part of the 10 percent who see their rates go up thanks to the use of credit scoring. He also said the increases for those adversely affected may be significantly greater than the decreases seen by those who benefit.
Birny Birnbaum, executive director of the Center for Economic Justice, urged regulators to develop a model law that calls for a moratorium on the use of credit.
“There’s a real need for action,” he said, stating that current economic conditions have created a crisis for the consumer with respect to credit information.
He said people who are in foreclosure because of steep hikes in adjustable-rate mortgages, and those in bankruptcy because of the recession are the ones facing the brunt of the credit-related insurance rate increases.
Mr. Birnbaum also expressed dismay that regulators were asking industry representatives for information the commissioners should already have. He recommended the NAIC develop a template for uniform data collection that includes information about applications for insurance rather than just for policies written.
Insurance group representatives noted that many states have enacted rules requiring insurers to consider extreme life circumstances, such as those caused by the current economy, in their underwriting and rate-setting decisions.
They also said many insurers do not use credit information to adversely affect renewals, so customers who stayed with the same insurer and have been impacted by the financial crisis saw no increase in rates because of credit history in many cases.