WASHINGTON (Feb. 28, 2008) – The National Association of Mutual Insurance Companies (NAMIC) today warned of potentially higher insurance rates for Connecticut consumers if the state adopts a ban on the use of credit-based insurance scoring to underwrite motor vehicle insurance premiums. The Legislature is considering a measure to forbid the use of credit ratings among auto insurers.
“By prohibiting insurers’ use of credit-based insurance scores in the pricing of auto insurance, HB-5151 would hamper insurers’ ability to utilize a valid predictive tool to assess risk and price it appropriately,” said Paul Tetrault, NAMIC’s Northeast state affairs manager. “It would interfere with the efficient functioning of the insurance market, leading to cross-subsidization and higher prices for insureds with good credit histories.”
The Bill is being considered by members of the Insurance and Real Estate Committee. In testimony before the panel, Tetrault explained that several recent studies have attested to the predictive power and to the consumer benefits of insurance scoring.
“The most recent and comprehensive study of insurer use of credit-based insurance scores, conducted by the Federal Trade Commission and released last year, found that insurance scores are effective predictors of claims and claims costs,” Tetrault testified. “The FTC study also underscored the potential benefits for consumers of insurers’ use of insurance scores since they help streamline the underwriting process and allow insurers to evaluate risk with more accuracy, which can make them more willing to offer insurance to higher-risk consumers.”
Tetrault also cited a report showing the direct impact to consumers of insurance scoring. “The consumer benefits of insurance scoring have also been documented in a report of the Arkansas Insurance Department, which found that use of scores resulted in discounts or no change for 89 percent of auto policies,” he said. “Ultimately, enactment of HB-5151 could prevent insurers from providing some insureds with the best price possible for insurance coverage.”
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Posted: Thursday, February 28, 2008 12:00:00 AM. Modified: Friday, February 29, 2008 9:35:37 AM.
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