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Kansas Credit Scoring Regulation Bulletin Significantly Alter Current Law, NAMIC Testifies

TOPEKA, KAN (Sept. 17, 2004)--The current Kansas Department of Insurance (KDI) regulation as well as a proposed KDI bulletin on the use of credit-based insurance scores, significantly alters the Kansas Insurance Score Act, one of 20 state laws based on the NCOIL model, and these alternations place burdensome compliance obligations on insurance companies, the National Association of Mutual Insurance Companies (NAMIC) testified here today.

"NAMIC believes that the Kansas Insurance Department's interpretation of the Kansas Insurance Score Act, as reflected by the proposed bulletin as well as by current regulation, requires clarification and revision," testified Central Region State Affairs Manager Joe Thesing.

Thesing testified on proposed Bulletin 2004-6 regarding implementation of the Kansas Insurance Score Act (K.S.A. 2003 Supp. 40-5101, et seq.) and current regulation (K.A.R. 40-1-50) on the use of credit-based insurance scores.

NAMIC's greatest concern with the proposed bulletin is as follows:

"Included in the introduction of draft Bulletin 2004-6, is the Department's interpretation of 'sole use,' which asserts that individuals with the worst credit history are entitled to the same treatment as individuals with the best credit history unless there is a non-credit related reason to take an 'adverse action,'" said Thesing. "The Kansas Department of Insurance believes that at least one other negative factor must be present for credit scoring to be used in compliance with the Department's regulation, an interpretation of the NCOIL model vastly different from virtually every other state with similar laws or regulations."

Earlier this week, at the National Association of Insurance Commissioner's (NAIC) meeting in Alaska, the Market Regulation and Consumer Affairs (D) Committee adopted a report authored by the Credit Scoring Working Group that includes the following interpretation of "sole use:"

"An insurer must consider other relevant factors, in addition to credit information, in the underwriting decision. An insurer shall be prohibited from deeming other underwriting factors irrelevant for new or renewal business, regardless of how favorable these other underwriting factors are, if a person's credit score does not meet a specified threshold. For example, an insurer should be prohibited from declining to write a policy when the credit score is below some specific value. An insurer should not be prohibited from declining to write a policy when the credit score is below a specific value and the driver has had several accidents."

"Also, NCOIL has issued a statement through Property & Casualty Committee Chair Rep. George Keiser, N.D., clarifying that the intended meaning of 'sole use' was to ensure that factors other than credit would be considered but that credit experience can be the definitive factor," Thesing said.

Both NCOIL and the NAIC Market Regulation and Consumer (D) Affairs Committee agree that an individual's credit-based insurance score can be the determining factor in making an adverse underwriting decision, just not the only factor considered.

NAMIC, the other national trades and a dozen insurers provided comments during the meeting and recommended to the Department that the draft bulletin be changed to reflect the "sole use" interpretation of NCOIL and NAIC. NAMIC does not believe Regulation K.A.R. 40-1-50 is consistent with current law as defined by the Kansas Insurance Score Act (K.S.A. 2003 Supp. 40-5101, et seq.) and respectfully requests that the current regulation and the proposed bulletin be revised and rewritten to reflect the Department's current authority regarding credit-based insurance scores.

Thesing's entire testimony and Rep. Keiser's letter can be read on NAMIC's website, NAMIC Online, at respectively:

• NAMIC comments addressed to John Campbell
• Rep. George Keiser letter addressed to Joel Ario and Michael Kreidler

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For further information contact:
Robert Detlefsen at rdetlefsen@namic.org
or (317) 875-5250