WASHINGTON (March 14, 2008) – Legislation aimed at protecting insurance consumers could instead result in higher rates for many policyholders, warned the National Association of Mutual Insurance Companies (NAMIC). H.R. 5633 would bar insurers’ use of credit scoring information.
The bill, the Nondiscriminatory Use of Consumer Reports and Consumer Information Act of 2008, would amend the Fair Credit Reporting Act to prohibit certain uses of consumer reports and consumer information for underwriting and rating automobile and homeowners insurance. It was introduced yesterday by Rep. Luis Gutierrez, D. Ill., and co-sponsored by House Financial Services Committee Chairman Barney Frank, D-Mass., and Mel Watt, D-N.C., chairman of the committee’s oversight and investigation subcommittee.
"Contrary to what the authors of this legislation assert, this bill is not in the best interest of consumers," said Neil Alldredge, NAMIC's vice president for state and regulatory affairs. “Rather than leveling the playing field for certain groups, this bill would interfere with the efficient functioning of the insurance market, leading to cross-subsidization and higher prices for insurance consumers with good credit histories.”
Alldredge pointed to research showing that credit-based insurance scoring is an accurate predictor of future claims. “Study after study has unquestionably demonstrated the benefit of credit-based insurance scoring as a predictive tool for rating and underwriting,” he said. “In fact, two consecutive studies by the Arkansas Insurance Department found the use of scores resulted in discounts or no change for nearly 90 percent of auto insurance policyholders.”
Studies conducted by the Insurance Department of Texas and the Federal Trade Commission have both confirmed the predictive power of insurance scoring. These studies have also found that insurance scoring is not unfairly discriminatory.
“In addition, nearly every state has enacted regulation or legislation on the use of credit-based insurance scoring,” Alldredge said. “Rather than hurting consumers, the practice encourages competition, enables insurers to offer coverage to more consumers at a fair price, and allows insurers to better predict losses than if they relied solely on more traditional underwriting variables."
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Posted: Friday, March 14, 2008 12:00:00 AM. Modified: Wednesday, March 19, 2008 1:35:43 PM.
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