NAIC To Propose Scoring Regs., Brochure
By E.E. Mazier
NU Online News Service, Sept. 11, 3:18 p.m. EST, New Orleans?A proposed consumer brochure and proposed regulations for insurers' use of consumer credit background information to evaluate customers is due to be released for comment next month, regulators here said yesterday.
In a discussion that was brief, the National Association of Insurance Commissioners' Credit Scoring Working Group took up both the proposed consumer brochure on insurer use of credit information in underwriting and rating and a draft of options for regulating various insurer practices in the use of credit information.
Credit issues that were discussed included the use of credit information for non-renewal of policies, disclosures to consumers on the use of credit history and the development of insurance-based credit scores.
The Credit Scoring Working Group indicated that it will release a revised draft of the options paper and the brochure in October for another review by interested parties. The group then plans to vote on the brochure and the options paper at the Winter National Meeting of the NAIC.
The bulk of the working group's time was spent on receiving a report from the American Academy of Actuaries on the feasibility of studying the possible disparate impact the use of credit scoring may have on minority and low-income consumers. The feasibility in terms of time, expense and logistics of a study of individuals by race, income, credit information and insurance loss were discussed.
The AAA noted that existing research points to a correlation between credit characteristics and the risk of loss.
Despite the inherent challenges of such an undertaking, several Working Group members insisted that such a study is necessary because existing research fails to adequately address the disparate impact issue. At least one member of the Working Group tried unsuccessfully to recommend a resolution, calling the use of credit in rating and underwriting a "scam."
Credit Scoring Working Group Chairman Joel Ario, who is commissioner of the Oregon Insurance Department, noted that even if a new study showed disparate treatment, this finding would also have to be studied. He noted that several acceptable underwriting and rating factors also have a disparate impact on consumers.
The AAA plans to present a proposed design for the disparate impact study to the NAIC by the December meeting.
The Working Group also agreed to commission a study of how insurance companies handle "no hit" situations, that is, when no credit information is available on a consumer.
That study would look at whether companies treat "no hits" as a negative, positive or neutral factor. Results of the survey are expected at the NAIC's Winter National Meeting.
Mr. Ario also indicated that the Credit Scoring Working Group will take up the issue of whether the NAIC should consider a resolution on credit scoring at the Winter Meeting.
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