Insurers Attack NAIC Credit Score Study

Insurers Attack NAIC Credit Score Study

By Daniel Hays

NU Online News Service, Sept. 15, 12:17 p.m. EDT, Chicago?Representatives of two insurance trade groups meeting with a panel of state insurance commissioners here have denounced the idea of regulators possibly conducting a study of whether use of credit background records has an unfair impact on minorities.

Their angry complaints were made at Saturday's National Association of Insurance Commissioners fall meeting during a session of the Industry Liaison Committee. Officials said a vote is possible on the issue today when a unit of the Market Regulation and Consumer Affairs Committee is due to hold a session.

Robert Zeman, National Association of Independent Insurers senior vice president, called it a "very flawed proposal." He was joined in his protest by Roger Schmelzer, representing the National Association of Mutual Insurance Companies.

Mr. Schmelzer suggested that if the NAIC were to go along with such a study that it "will lead to other questions about the business of insurance" and could eventually lead to an "eroding of the underwriting process."

He told the panel that only one state so far has elected to ban insurance scoring and that to start the study would undermine the work of state legislatures.

The way the issue has been dealt with "is political," said Mr. Schmelzer.

Mr. Zeman said the proposal was flawed from a legal, technical and public policy perspective and driven by politically motivated commissioners.

The issue of credit scoring was penciled in for discussion by the Consumer Liaison Committee on its Saturday meeting agenda as well, but the topic was never reached.

Missouri Insurance Director Scott B. Lakin, who chaired the Consumer Liaison panel, said he expected credit record use would come up this afternoon at the Market Regulation and Consumer Affairs Committee and the study, which he supports, might possibly be voted on.

The trade group campaign against the proposed study included a Sunday press briefing by the NAII. The trade group released excerpts of some testimony due to be delivered today to the Regulation and Consumer Affairs Committee by a former regulator who argued the study fails to address legal standards of insurance.

The testimony is from Nathanial S. Shapo, a former director of the Illinois Insurance Department.

According to Mr. Shapo, now a partner in a law firm, "A disparate impact study on credit is unnecessary within the context of insurance regulation, as the NAIC has not disputed and does not appear to be disputing credit's value as a useful innovation in predicting risk of future loss.

"In moving forward with such a study, the NAIC would be acting on a different set of premises about unfair discrimination than those that have prevailed for decades..without an articulated rationale for treating one actuarially justified rating factor differently from other actuarially justified factors."

He said the study would counter positions the NAIC has taken in legal cases.