AIA Criticizes NAIC Study Proposal

The study would determine if credit-based insurance scores are "correlated with selected demographic characteristics," AIA said, quoting from the document.

AIA went on to say in a statement that there were "disturbingly biased assumptions" in the proposal as well as "shoddy methodology."

David Snyder, AIA vice president and assistant general counsel, told National Underwriter, "We see the study as inconsistent with the usually high standards of the NAIC."

He said AIA felt compelled to go public with its misgivings over the proposal because it felt the study would be misleading and "poison" to the industry. "We felt it was evident that someone wanted to do this, it was only a question of how it was going to done," Mr. Snyder said.

He also said the study was a waste of resources and questionable in law. According to AIA, the study would involve obtaining names, telephone number and credit scores "of thousands of American consumers."

An outside firm would contact these consumers, asking detailed questions about race, income, education and employment history of the individual as well as family members?the caller also would not reveal access to the consumer's credit scores.

"This has no merit in law or regulatory practice," Mr. Snyder said. "It does not answer the right questions."
What is needed, he said, is improved understanding on the use of credit scores, "making the whole process more understandable to consumers," and improved reporting. "This study goes in the wrong direction and delays getting to what is really needed," he noted.

The Alliance of American Insurers, based in Downers Grove, Ill., issued a statement saying the NAIC's study should "be tossed." It called on the organization to accept credit-based insurance scoring "as one of the factors in underwriting and rating auto and homeowners policies."

Lynn Knauf, Alliance's policy manager, said in a statement that "this is nothing more than an effort by a few regulators who are opposed to the use of credit-based insurance scores to create a study that will reach only one conclusion, the one they've already reached." She continued that regulators "can't, or simply won't accept the unbiased studies that have shown a clear correlation between insurance scores and risk of loss."

Joel Ario, Oregon's Insurance Administrator and NAIC secretary/treasurer, said he was surprised by the attacks and thought they were premature. He said NAIC is still looking for input from company associations on the issue.

He added, however, that the question of how credit-based insurance scores impact certain racial groups and income and age groups remains important and needs to be studied. The issue is "complicated," he said.

"To not care how these groups are impacted is just wrong in my view," Mr. Ario said. "I could not predict to you right now exactly what proposals we will have to discuss," he said. "We may have a couple of different options to discuss at our September meeting. But I do think, from my state legislature and other state legislatures, we are hearing questions about [credit-based insurance scores]."

He added that the issue does have a "discriminatory impact and we are hearing questions about that. So the idea to just stick our heads in the sand and not explore that question is just wrong. But at the same time, we need to explore it in its complexity, not in some simple-minded way."