NU Online News Service

SEATTLE--Regulators' interest in insurers' use of credit-based insurance scores produced lively reaction from insurance association representatives and a consumer advocate during a committee meeting on property and casualty insurance issues.

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

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

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

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

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

Hollowell countered that the use of credit scoring is much broader in Michigan than in Connecticut, accounting for the difference.

He also blamed a recent state Supreme Court decision that he said stripped the state commissioner's authority to limit the use of credit scoring.

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

Discussion of a model law to regulate insurance scoring vendors brought a sharp exchange between Illinois Insurance Director Michael T. McRaith, the committee chairman, and Alex Hageli, director of personal policy for the Property Casualty Insurers of America, 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 regulating an 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 a role overseeing a reporting agency that can have a serious impact on consumers.

Hageli later issued a statement saying PCI was disappointed, but not surprised, that the committee went ahead with development of the model law. He said the law is unnecessary because credit scores are already heavily regulated. He further criticized the committee for its data call on credit scoring.

The committee said the call would be voluntary and the information collected would be confidential and released at some point in the aggregate.

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Credit Scoring Takes Center Stage at NAIC Committee Hearing

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