Trade Groups Praise SC Credit Score Rule

The bulletin, issued May 24, goes into effect Jan. 1, 2003.

The Alliance of American Insurers, of Downers Grove, Ill., said the bulletin regulates insurer use of credit scoring "in a manner that is fair to both consumers and insurance companies."

Similarly, Raymond G. Farmer, assistant vice president, southeast region for the American Insurance Association said, "The South Carolina bulletin strikes an important balance in preserving insurers' ability to consider credit while providing additional protections for consumers."

The AIA, headquartered in Washington, D.C., also said it is satisfied with the department's efforts to work with the industry "in developing reasonable requirements for insurers' use of credit."

In Mr. Farmer's view, the bulletin "clarifies that under current law insurers can use credit [information], but there are certain requirements that insurers must meet in order to do so."

Among other things, the bulletin does not allow a credit score to be the sole factor upon which an insurer decides to insure or not.

Additionally, insurers who use credit scores must file with the department the loss experience that justifies any credit or surcharge due to the consumer's credit score. Consumers also must be told at the time of application that the insurer may consider their credit score.

The bulletin also says that if an insurer is unable to obtain enough information to evaluate a person's credit history to give the person a credit score, the insurer has three options:

? Treat the consumer as "otherwise filed" if the insurer can show that not having a credit score is related to the risk of insurance.

? Treat the insurance applicant or customer as if he or she has a neutral credit history or score, as defined by the insurer.

? Exclude credit as a factor and use other underwriting criteria only.

Robert Herlong vice president of the Alliance's southeast region, said that insurers' continued ability to consider credit information when underwriting and pricing auto policies "means that many insurers will be able to strengthen their commitment to writing business in the state." He added that this will result in increased choice and competition for consumers.

To Lynn Knauf, personal lines policy manager in the Alliance property-casualty department, the "specific but reasonable filing guidelines" indicate the Department's clear understanding of the value of considering credit information: "that there is a clear and compelling correlation between credit score and insurance loss."

Ms. Knauf also stated that the Department agreed with the industry's recommendation to exempt homeowners and personal property underwriting from the bulletin restrictions.

"We also argued that insurers need to be able to fully consider credit information in homeowners underwriting as a method of spotting potential fraud, since personal property coverages are particularly vulnerable to first-party fraud," Ms. Knauf said.