NAIC Will Revisit Insurer Credit Scoring

Florida Insurance Commissioner Kevin McCarty, NAIC's secretary-treasurer, signaled a day earlier that such a hearing was in the works.

At the Consumer Liaison meeting on March 14, Mr. McCarty said he was working with the chairs of the two committees to set up a joint hearing to examine how insurer use of credit history is affecting consumers in today's difficult economic environment. However, the two panels needed approval from the Executive Committee to pursue such a hearing.

Market Regulation Committee Chair and Oklahoma Commissioner Kim Holland told the Executive Committee that the joint hearing would examine what credit information is used, how it is used, and the impact on policyholders.

She said she understood the issue is the subject of debate, but it is appropriate to revisit the debate to see how credit information is used in the current recession.

She added it is useful to hold a hearing so the NAIC has its own information on credit scoring rather than relying on previously published reports.

Speaking on behalf of the Property-Casualty Committee, Mr. McCarty said consumer groups are prepared to testify at the hearing to challenge what they believe are myths used to support the use of credit scoring by insurers. He added that the industry is also eager to participate to make its points on the issue.

Although all present members of the Executive Committee approved the hearing request, some members expressed apprehension.

Connecticut Insurance Commissioner Tom Sullivan, for example, questioned what the "end game" of such a hearing would be, and stated: "I'm skeptical going in."

He said he shares the concern of how credit information is used in today's economy, but he questioned how exactly the two committees planned to get results.

Commissioners McCarty and Holland stated there is no end game beyond gathering information on the issue, and Mr. McCarty added it may turn out that the committees will be satisfied with the methods used by insurers in the current economy.

Dave Snyder, vice president and assistant general counsel for the American Insurance Association, said after the previous day's Consumer Liaison meeting he looks forward to again proving that the use of credit information is a fair and accurate indicator of risk. He noted the NAIC has held hearings on the matter before.

Deirdre Manna, vice president of industry, regulatory and political affairs for the Property Casualty Insurers Association of America, said before the Executive Committee meeting that she was concerned about two separate NAIC committees looking into the issue at the same time.

Commissioners Holland and McCarty said the committees are holding a joint hearing in recognition of their equal concern and relevance. They indicated the hearing would likely take place in April.

CLIMATE CHANGE

Meanwhile, the NAIC gave final approval last week to a climate risk disclosure survey that has received mixed reaction within the insurance industry.

Insurers are asked in the survey to answer eight questions designed, according to the survey draft, "to provide regulators, shareholders and the public with substantive information about the risks posed by climate change to insurers and the actions insurers are taking in response to their understanding of climate change risks."

Industry groups such as PCI and the National Association of Mutual Insurance Companies have opposed the survey because they argue that answers could be made public and thus expose insurers to lawsuits, depending on how those responses are perceived and used by interested parties.

Others, such as the American Insurance Association, accept the survey in its current form because it is the result of compromises made by the industry and consumer groups.

As noted by Commissioner Joel Ario of Pennsylvania, who chairs the Climate Change and Global Warming Task Force, the original proposal called for the survey to be included in the annual financial statements that insurers are required to file. Additionally, the questions were precise and specific, he said.

The industry had said the annual statement was not an appropriate vehicle for the questions, and Commissioner Ario noted the final survey version removes the questions from the annual financial statements and asks more general questions.

Connecticut Insurance Commissioner Tom Sullivan said he supported the current survey version because the reporting requirements seem to be "relatively benign." He did, however, express opposition to any further "rigid encroachment" by the NAIC on the subject of climate change. "I view this very much as a ceiling now," he said.

Commissioner Ario said the Climate Change Task Force would not be looking to drill down anymore on this issue. He also said the goal of the survey is to promote coordination among the states.

Without a uniform NAIC survey, he said, individual states would have taken separate actions on this issue, creating multiple surveys with different questions.

The survey would require insurers to submit answers by May 1, 2010 for the 2009 reporting year, a PCI brief noted.