Insurers Win Credit Score Okay In 2 More States

The model, approved in November of 2002 with industry backing, requires notification of a consumer by the carrier when an adverse action is taken based on a credit score; requires an insurer to file its credit scoring model with the insurance regulator; indemnifies insurance agents and brokers who obtain credit information according to an insurer's procedures; and requires an insurer to re-underwrite when a credit score is corrected.

"AIA worked very closely with Montana legislators to develop a measure that balances insurers' need to accurately assess risk with the need to provide protections for consumer's personal information," said AIA vice president Steve Suchil.

The bill now goes to Democratic Gov. Brian Schweitzer for his signature.

Lynn Knauf, personal lines director for the Property Casualty Insurers Association of America, said "it was one of the tougher fights we had in Montana."

Insurance Commissioner John Morrison has been fairly vocal in his criticism of the practice in the past. "But," he said, "we worked hard with the commissioner and we hoped we answered his concerns."

Among the deviations from the NCOIL model are numerous items that can't be considered in an insurance credit score, such as number of inquiries.

Mr. Suchil said there was some sentiment for a total ban and noted this was the first time the state has had a legislature and governor's office all under Democratic control in decades.

Credit scoring by insurers has been a controversial issue because opponents see it as a procedure that impacts most heavily on lower income and minority groups. Additionally, they argue it fails to deal properly with persons who have no credit record, deal in cash, or are impacted by a major medical billing.

Earlier this month, New Mexico Democratic Gov. Bill Richardson signed into law a credit scoring bill that also tracks the NCOIL model. It prohibits underwriting based solely on an insurance score and forbids carriers from considering absence of credit information in underwriting except for certain circumstances.

"This law will provide New Mexico with some of the strongest consumer safeguards in the country that go beyond similar laws adopted in other states," said AIA Vice President Fred Bosse.

All told, an estimated 21 states have now signed into law a credit scoring law based on the NCOIL model, Ms. Knauf said.

"But the NCOIL distinction is getting less and less meaningful as more and more states issue new bulletins that basically use components of the model," she said.

Hawaii has banned the practice outright while California has done so through regulatory practice. Maryland has banned it for homeowners' insurance. Michigan regulators have said they will ban it but face a court challenge.

"All of the other states allow it with some regulation," said Ms. Knauf.