WASHINGTON (Oct. 1, 2007) – The National Association of Mutual Insurance Companies (NAMIC) today urged Congress to reject calls to further restrict the use of credit-based insurance scores for underwriting purposes. Speaking in advance of a congressional hearing on the issue, NAMIC officials outlined the many benefits for the vast majority of drivers and homeowners.
“Credit-based insurance scores provide an objective and consistent tool that insurers use with other information to better predict the likelihood of future claims and the cost of those claims,” said Carl Parks, NAMIC’s senior vice president of government affairs. “The practice encourages competition, enables insurers to offer coverage to more consumers at a fair price, and helps streamline the decision process.”
Parks noted that credit-based insurance scores are just one of many criteria insurers use to determine appropriate rates for policyholders and their use is carefully monitored and regulated.
“Most states have established a lengthy set of rules pertaining to insurance scoring,” said Neil Alldredge, NAMIC’s vice president for state and regulatory affairs. “For example, most states prohibit insurers from using insurance scores as the sole basis for denying, cancelling, or non-renewing coverage.” He also noted that state law requires disclosure if insurance scores will be used as a rating or underwriting factor and requires notification if an adverse action was taken due in part to an insurance score.
“Simply put,” Alldredge continued, “credit-based insurance scores are being effectively regulated by the states now.”
NAMIC disputed allegations that credit-based insurance scoring discriminates against minorities and the poor. “Credit-based insurance scoring does not consider characteristics such as race, ethnicity, gender, national origin or income level,” said Robert Detlefsen, NAMIC’s vice president for public policy. “In addition to demonstrating a strong relationship between an individual’s insurance score and the likelihood that he will file an auto or homeowners claim, empirical studies such as those recently conducted by the Federal Trade Commission and the Federal Reserve Board have confirmed that credit scores do not serve as a proxy for race or ethnicity.”
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