NU Online News Service, May 5, 5:13 p.m. EDT–State legislatures across the country are taking a balanced approach to bills regulating the use of credit history as an underwriting factor, said a carrier association.
The Des Plaines, Ill.-based Property Casualty Insurers Association of America, in its review of legislation, said that so far this year 27 states have had legislative or regulatory activity related to insurers' use of credit information. At this time, only two states (Montana and New Mexico) have enacted legislation. The laws in both states are largely based on a model act developed by the National Conference of Insurance Legislators, the association said. The laws allow insurers to use credit information while providing consumer safeguards.
PCI said that while a growing number of states permit the use of credit information by insurers, for the past several years some states have considered bills to ban or severely restrict its use. The legislative battleground states in 2005 so far have been Arkansas, California, Colorado, Delaware, Illinois, Montana, New Mexico, Pennsylvania, Vermont, Texas and Washington, the association noted.
John Lobert, senior vice president of state legislative affairs for PCI, said that most states have opted to maintain their current laws.
According to PCI, Colorado enacted the NCOIL model in 2004. However, during the 2005 session, legislators took three swings at banning the use of credit history and struck out. Illinois, which enacted NCOIL in 2003, rejected a ban and is now considering adding a requirement that insurers consider exemptions to the use of credit for extraordinary circumstances. Lawmakers in Montana and New Mexico also rejected measures to ban the use of credit information, opting for compromise language similar to the NCOIL model.
Early in 2005, all eyes were on Texas, as the insurance department released its study of insurers' use of credit information to the legislature, PCI said. The Texas Department of Insurance study reaffirmed not only the strong link between credit and risk of loss but also that credit significantly improves pricing accuracy.
Mr. Lobert said the findings were important because they allow lawmakers and the public to rest assured that the issue is one of risk, not race.
In addition to the legislative victories, a Michigan Circuit Court judge recently ruled that the state's Office of Financial and Insurance Services overstepped its authority in issuing rules that prohibited the use of insurance scores.
According to PCI's review of regulatory activity, there has been progress in some states where the rules process held up implementation of the NCOIL model law. In Georgia, the insurance department approved the use of insurance scoring models developed by the two leading providers of scoring models. This clears the way for the department to approve regulatory filings that include insurance scoring.
"Although 2005 has been a very contentious year with no fewer that 65 bills being introduced around the country, consumers have been the winner as lawmakers have defeated the effort to ban insurance scoring and found workable legislative compromises," said Mr. Lobert.
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