NCOIL Modifies Credit Score Act Language
The National Conference of Insurance Legislators has altered its model law on insurer use of credit background to clarify its prohibition against sole use of credit scores in determining underwriting and rating decisions.
The lawmakers at their meeting in Chicago this month adopted a drafting note asserting that carriers are prohibited from using threshold credit scores in underwriting decisions to the point that no applicant or policyholder would be insured if their score fell below a certain number.
The so-called "sole use" provision has been one of the most debated in the states as to how it should be interpreted. NCOIL adopted its credit score model in November 2002, and since then 22 states have adopted it.
Industry representatives disputed just how widespread the use of thresholds are, but were more than willing to agree to a drafting note so that the practice that they believe is already happening is codified into law.
The lawmakers rejected adding an amendment, partially to underscore their belief that the model law did not already sanction the practice in question.
The National Association of Insurance Commissioners is developing a series of best practices aimed at helping lawmakers and regulators interpret various aspects of the credit scoring model law that have been called into question.
Oregon Administrator Joel Ario, chair of the Credit Scoring Working Group, said the drafting note was a valuable addition to the model but that the working group's best practices go further.
The NAIC best practices do for the most part stick to the threshold prohibition.
Indeed, the industry succeeded in eliminating a provision in the best practices requiring at least one other factor such as age of home, age of the insured or claim experience to change before an insurer could take an adverse action on a policy.
In general, the industry has fought against developing the best practices for fear that it would permit back-door legislating. Such a procedure, they fear, could be used by credit scoring foes to impede the use of credit scoring in a way they could not through the straight legislative process.
In other credit scoring action, the industry continued its full court press against the multistate study of the impact of credit scoring on low-income and minority policyholders.
Robert Zeman, of the Property Casualty Insurers Association of America in Des Plaines, Ill., said that lawmakers would be wise to wait unit the federal government completes its own study sometime next year.
At the NCOIL meeting, a representative of the Louisiana Insurance department said her department would withdraw from the study, citing the costs and a belief that the dwindling number of states participating in the research will limit its credibility. Of the 13 states that originally signed up, only seven are still taking part.
Reproduced from National Underwriter Edition, July 22, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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