Consumer Hits Insurers On Credit Score Letter

Consumer Hits Insurers On Credit Score Letter

By Daniel Hays

NU Online News Service, June 30, 12:55 p.m. EDT?A Texas based consumer group has denounced what it said were "desperate tactics" by the insurance industry to stop a multi-state study of the carriers' use of credit background to rate customers.[@@]

The Center for Economic Justice in Austin, Texas made its comments in reaction to a letter sent by an attorney for insurers who told regulators their data requests for the study was illegal.

Eight states led by Missouri have undertaken the study to determine the impact of credit scoring and its underwriting basis.

"We know that insurers' use of credit scoring will come to an end when we see the insurance industry resort to such desperate tactics to defend their use of credit scoring," Birny Birnbaum, executive director of the center said in a statement.

He added, "If you can't win on the merits, then you demonize the other side, misinform the debate and contradict yourself every time you say something. The industry can't win the credit scoring debate on the merits, so it must resort to these other tactics,"

Mr. Birnbaum accused the insurers of employing "the standard misinformation tool--misrepresent the issue and then criticize their misrepresentation."

He said, "Although there is a difference of opinion among state insurance regulators regarding insurers' use of credit scoring, all state regulators should be outraged by this bald industry attack on basic regulatory oversight."

By Mr. Birnbaum's reading of the letter from attorney Nat Shapo, the industry was telling regulators, "'We can give our data to whoever we want for whatever purposes we want, but you don't have the authority to test our claims' [and] ?We'll agree to a study of our practices as long as we pick the investigators and control the analysis.'"

Mr. Shapo, a former Illinois insurance commissioner who wrote on behalf of the Property Casualty Insurers Association of America and the National Association of Mutual Insurance Companies, said, "I don't think the criticism addresses the issues we raised."

Mr. Birnbaum said, "The attack on regulators' ability to collect data for market analysis is particularly troubling. At a time when the state insurance regulators are trying to demonstrate to Congress and consumers that market conduct regulation can be reinvented--with market analysis as the foundation of this reinvention--insurers are telling regulators that they will try to prevent market analysis with frivolous legal challenges."

According to Mr. Birnbaum, the letter from Mr. Shapo misrepresents the multi-state study by claiming it is designed only for a "disparate impact" analysis when in fact, the multi-state study is used to examine a number of issues related to credit scoring, all of which are clearly within the jurisdiction of insurance regulators.

Mr. Shapo said the Center's criticism did not deal with issues his letter had mentioned that a portion of the study will make a public policy inquiry as opposed to being part of a compliance exam. He also said he addressed whether the question of disparate impact is relevant under current insurance law without a finding of intent to discriminate against a protected class."

Mr. Birnbaum called the letter an industry effort to "replay of the stall tactics we've seen since 1995 when the industry refused to provide the credit scoring models to regulators."

"The majority of regulators allowed the use of credit scoring with no examination of the models or scoring practices through the remainder of the 1990s. We had hoped that regulators learned a lesson from those industry tactics, but we won't know until we see how regulators respond to the latest industry roadblock."

Mr. Birnbaum concluded: "The latest industry attack has the potential to harm state insurance regulation far beyond credit scoring issues. We urge states that have been sitting on the sidelines to join in the multi-state credit scoring study and make clear to all that insurance regulators actually believe in effective market regulation. If insurers are able to thwart

state regulators from examining a market conduct issue as important as credit scoring, what hope is there for regulators to examine other market issues?

Mr. Shapo's letter argued that the data call involved "makes it clear that the primary purpose of the study is not to verify compliance with existing law" and that PCI and NAMIC "believe that information gleaned from market conduct examinations should only be used to determine compliance with existing law, not as a basis for developing new laws."