Consumer Groups Score NAIC For Having Credit Issue On Backburner

NU Online News Service, Nov. 16, 3:37 p.m. EST

Consumer groups have chided the National Association of Insurance Commissioners' efforts regarding credit-based insurance scoring, saying regulators have ignored the credit issue.

The Consumer Federation of America (CFA), the Center for Economic Justice (CEJ) and other consumer advocates said in a joint statement that they have been calling on the NAIC to take action on insurance scoring for many years and, while the organization has acted with speed on issues insurers have concerns with, it has ignored consumers.

Among other arguments regarding insurers' use of credit information, consumer groups have contended that credit-based insurance scores are unfairly affecting consumers who have been impacted by the current recession.

"In response to this crisis for consumers, the NAIC has done nothing but hold a public hearing," said Birny Birnbaum, executive director of Austin, Texas-based CEJ.

"State regulators have taken no action to protect consumers who are victims of economic or medical catastrophes or predatory and reckless lending practices of banks," he charged.

J. Robert Hunter, director of insurance for CFA, said, "But, state regulators have worked overtime to provide capital and reserve relief to insurers."

Mr. Hunter criticized a proposed 2010 agenda for the NAIC's Property and Casualty Committee, which includes efforts to "define what constitutes a credit-based insurance score" and "evaluate how insurers use credit-based insurance scores."

Mr. Hunter said, "To address the crisis faced by consumers in these dire economic times, the NAIC will take another year to study 'what is a credit score'–despite the fact that states have been regulating, or were supposed to be regulating, insurance scores for the past decade."

In a conference call, the committee approved its agenda, and Mr. Birnbaum again voiced objections, stating that the NAIC has had this issue for "well over a year," and if the NAIC is serious, it will commit resources and get a report done by the March meeting.

If regulators cannot get a report done by March, then they should not bother with the issue any further, he said.

Illinois Insurance Director Michael McRaith, who chairs the Property and Casualty Committee, said in the call that the NAIC does not want to "over-promise on a schedule."

He added that getting a report completed is not a question of will or motivation, but rather "trying to be realistic stepping past the rhetoric on both sides and moving to fact-based analysis."

In an interview, Director McRaith defended regulators' action, stating that the NAIC has had an "aggressive schedule" with respect to credit-based insurance scores.

He said the NAIC has addressed the topic on a number of occasions and has been collecting information. NAIC, said Mr. McRaith, expects to have a "worthwhile, fact-based analysis" for the public at large when it is ready, and is not going to sacrifice accuracy in the name of haste.

"Our job is to dispense with the rhetoric on both sides" from both insurers and consumer groups, Director McRaith said, and to understand "in a detailed, nuanced sense" how insurance scores affect consumers today.

He said the NAIC intends to collect fact-based information to inform public policy-makers in states so that those officials can make the appropriate decisions for their consumers.

Jeffrey Brewer, assistant vice president, state public affairs for the Property Casualty Insurers Association of America (PCI), in an e-mail, challenged the consumer groups' charges concerning credit scoring flaws in the recess.

"We realize that some critics of the insurance industry are taking the current economic conditions as an opportunity to try to prohibit the use of credit-based insurance scores. The PCI has been urging the NAIC not to make assumptions regarding the impact of insurance scoring during the downturn in economy," he said.

According to Mr. Brewer, the economic downturn has actually caused consumers to take positive steps with respect to their credit.

"Consumers have retrenched since the financial crisis hit the economy in full force last September," he said. "Because they are making greater strides to pay off their debts, the major consumer reporting agencies, Fair Isaac, ChoicePoint and TransUnion, have determined that the average credit scores have actually remained steady or improved in certain states."