WASHINGTON–Five insurance industry trade groups defended carriers' utilization of credit records to set personal lines insurance rates and warned that barring their use would create major disruptions in the marketplace.
The letter was sent to members of the Oversight and Investigations Subcommittee of the House Financial Services Committee, which called witnesses to testify on the issue at a hearing today.
In opening the session, the chairman of the committee, Rep. Mel Watt, D-N.C., said in a statement: "I don't think anyone should favor a [credit scoring] system in which, either directly or indirectly, racial classifications are allowed to hinder a person in their daily lives."
He added, however, that he's "willing to be convinced" on scores, but wonders if even predictive scores should be allowed if they have a race bias.
Rep. Watt and other members of the committee are promoting passage of two bills–H.R. 5633 and H.R. 6062–which would ban or limit use of credit scores as racially biased.
The letter to the committee was signed by the American Insurance Association; the Financial Services Roundtable; the Independent Insurance Agents and Brokers of America; the National Association of Mutual Insurance Companies; and the U.S. Chamber of Commerce.
Last Friday the Federal Trade Commission announced that it plans to order the nine largest insurance companies to provide records on how they use credit scoring to influence rates on homeowners' and auto insurance policies.
The letter from the five trade groups is in addition to testimony from Charles Neeson, a senior executive for personal lines products at Westfield Insurance, which is a member of the Property Casualty Insurers Association of America. Mr. Neeson is representing the industry at the hearing.
The trade group letter said that, as outlined in Mr. Neeson's testimony, the use of credit-based insurance scores allows insurers to more accurately predict losses, thus lowering rates and providing consumers more choice.
Several studies have reached this conclusion, the letter said, including the Federal Trade Commission's study on the use of credit-based insurance scores in automobile products, the Arkansas Department of Insurance survey, and the Texas Department of Insurance.
The letter added, "Prohibiting or banning the use of CBIS would, as former Texas Commissioner Jose Montemayor stated, '. . . create pricing and availability disruptions in a market. . . . Premiums would go up for a large number of policyholders if the collar on credit scoring (or any other risk variable for that matter) is set too narrow, because it would force an immediate price shock that would be unrelated to a change in risk.'"
The letter also said that use of credit scoring is regulated through provisions in the federal Fair Credit Reporting Act, and that states "comprehensively regulate the use of CBIS and they are subject to antidiscrimination provisions."
In fact, the letter added, most states have enacted or adopted limits on how an insurer can use credit scoring.
The letter noted that most states prohibit the use of insurance scoring as a sole reason for denying, cancelling, or nonrenewing a policy. Specifically, it said, states have also enacted numerous other consumer protections including enhanced notices, re-rating upon error correction, restrictions on what kind of information can be considered, and protections for consumers without credit histories.
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