• 

  News and Publications

  • Media Room
  • News: Federal
  • News: State
  • Publications
  • Subscriptions

• 

  Seminars and Services

  • Convention
  • Event Calendar
  • Services

• 

  Government Affairs

  • Advocacy
  • Compliance
  • Issue Resources
  • Legislative Reports
  • Public Policy
  • Political Action

• 

  About NAMIC

  • Membership
  • History
  • Member Directory
  • Employment
  • Affiliates
  • Contact

Read	E-mail Print

last updated on December 16, 2009

CREDIT-BASED INSURANCE SCORING

THE ISSUE

Restricting the use of credit-based insurance scores for underwriting purposes.

IT IS IMPORTANT BECAUSE

Credit-based insurance scores improve the affordability and availability of insurance for most consumers. Recent independent studies from the Federal Trade Commission and the Federal Reserve Board both came to the same conclusion – credit-based insurance scoring and the use of credit scores in general are objective and reliable tools to predict the likelihood of future auto claims and the costs of those claims. In addition, the FTC study explicitly invalidates the notion that insurers unfairly target minorities for higher insurance rates through the use of this underwriting tool.

There is no doubt that legislators and regulators have an interest in examining credit-based insurance scoring and confirming that it is a legitimate underwriting tool that is not unfairly discriminatory. However, including the FTC and Federal Reserve Board studies and many other third-party and state insurance department studies, there have been 18 credit-based insurance scoring studies conducted between 1996 and 2007, and they have consistently found a strong relationship between an individual’s credit score and incurred losses for both personal auto and homeowner policies.

Consumers benefit from insurance scores. The use of credit-based insurance scores encourages competition, enables insurers to offer coverage to more consumers at a fair price, and helps streamline operations. A study conducted by the Arkansas Department of Insurance found that 91 percent of drivers either receive a discount or are treated neutrally by the use of insurance scores. In addition, studies have established that the value of the information insurers obtain from using insurance scores cannot be found by using other traditional, more general rating factors.

Insurer use of credit is expressly permitted and governed by the federal Fair Credit Reporting Act, which provides numerous consumer protections. Additionally, 48 states have taken some form of legislative or regulatory action on this important issue, with Pennsylvania and Vermont the lone exceptions. The scope of regulatory provisions adopted in each state generally is based on the model law adopted by the National Conference of Insurance Legislators.

LEGISLATIVE HISTORY

During the 110th Congress, Reps. Luis Gutierrez, D-Ill., Barney Frank, D-Mass., and Melvin Watt, D-N.C., introduced H.R. 5633, the Nondiscriminatory Use of Consumer Reporting Act. The legislation would amend the FCRA to prohibit certain uses of consumer reports and consumer information for underwriting and rating automobile and homeowners’ insurance, so long as the FTC determines that such use – through a study or report – results in actual or proxy racial or ethnic discrimination.

H.R. 6062, the Personal Lines of Insurance Fairness Act, was introduced by Rep. Maxine Waters, D-Calif. The legislation was cosponsored by Reps. Gutierrez, Watt, Andre Carson, D-Ind., Al Green, D-Texas, and House Financial Services Committee Chairman Frank. This legislation would prohibit the use of credit-based insurance scoring in underwriting or rating personal automobile and homeowners’ insurance in all instances, regardless of any FTC or other finding of actual or proxy racial or ethnic discrimination.

NAMIC POSITION

NAMIC supports the right of insurers to use credit-based insurance scores in making underwriting and rating decisions. Credit-based insurance scoring has been proven time and again to be a strong predictor of insurance loss, allowing companies to more accurately underwrite and rate their business. As a result of credit-based insurance scoring, many companies affirm that they are able to write more business with greater confidence, and that the vast majority of policyholders – regardless of race or ethnic background - directly benefit by realizing better rates and more choices in the marketplace.

CONTACT INFORMATION

For more information please contact Dylan Jones, federal affairs director, at (202) 628-1558 or djones@namic.org.