An insurance industry lobbyist argued to Wisconsin legislators today that use of credit scores in determining insurance rates means customers who are good risks do not subsidize those who are bad risks.
David Snyder, a vice president and assistant general counsel of the American Insurance Association, made his comments before the Assembly Committee on Insurance during an informational hearing on the use of credit scoring.
At present there are two credit scoring bills in the Legislature, one in the Assembly and one in the Senate, but neither was the subject of the hearing.
Mr. Snyder added that the use of credit information by insurers benefits a majority of Wisconsin consumers whom he said "pay some of the lowest insurance premiums in the country and enjoy a stable, vibrant insurance marketplace."
"Using credit information as part of the rating or underwriting process helps insurers more accurately assess, and price, for an individual's risk, thereby reducing subsidization of bad risks by good ones, making the system fairer for everyone," he said.
Mr. Snyder told the panel that countless studies by federal and state regulators, universities, independent auditors and insurance companies have proven that consumers with better insurance scores generally file fewer claims and have lower insurance losses.
Additionally, he testified, "credit information is completely objective and 'blind' to legally prohibited factors such as race, religion, marital status and nationality."
In addition to state and federal consumer protection laws, Mr. Snyder said insurance regulators are charged with ensuring consumers are not charged rates that are "excessive, inadequate, or unfairly discriminatory."
"Insurers are subject to strict legal standards for all risk classification variables, including credit, and the state of Wisconsin has a strong regulatory system that has worked well for consumers and insurers," Mr. Snyder said. "There is no need for any drastic action that would end up harming the market," he added.
According to the AIA, only four states currently restrict credit scoring: Hawaii, California, Maryland and Massachusetts.
A regulatory ban was imposed by Michigan but reversed by a court ruling, which is being appealed by the state.
Delaware approved a bill earlier this year that banned credit scoring only for new customers.
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