WASHINGTON (July 20, 2007) – The National Association of Mutual Insurance Companies (NAMIC) today pointed to a government report that upheld the use of credit-based insurance scores for underwriting purposes. In response to the findings of a long-awaited report from the Federal Trade Commission, NAMIC officials noted the practice is a worthwhile means to reduce insurance costs for the vast majority of drivers and homeowners.
“The FTC study confirms what we’ve maintained all along: that credit-based insurance scores provide an objective and reliable 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-making process.”
Parks noted that credit-based insurance scores are just one of many criteria insurers use to determine appropriate rates for policyholders. It does not, as some critics have asserted, unduly penalize certain demographic subgroups.
“This study, unprecedented in its nature and independence, puts to rest the arguments critics have lobbed at the insurance industry for years,” said Neil Alldredge, NAMIC’s vice president for state and regulatory affairs. “For example, the report notes that credit-based insurance scores are effective predictors of risk under automobile policies, and their use results in benefits for consumers.”
The report explicitly invalidates the notion that insurers unfairly target minorities for higher insurance rates through the use of insurance-based credit scores, Alldredge said. He pointed to the statement: “Credit-based insurance scores appear to have little effect as a ‘proxy’ for membership in racial and ethnic groups in decisions related to insurance.”
“For years, we have asserted the practice of credit-based insurance scores to determine insurance rates was not unfairly discriminatory, as detractors have said,” Alldredge said.
NAMIC has consistently rejected allegations that credit-based insurance scoring discriminates against minorities and the poor.
“This study clearly points out that 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. “Actuarial studies have consistently demonstrated a strong relationship between an individual’s credit score and incurred losses for both personal auto and homeowner policies. In addition, studies have shown that the use of credit-based insurance scores enables insurers to predict losses more accurately than if they relied solely on more traditional underwriting variables.”
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Posted: Friday, July 20, 2007 12:00:00 AM. Modified: Friday, July 20, 2007 11:34:28 AM.
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