NAMIC Responds to CFA Report on Credit-based Insurance Scoring

Statement from Robert Detlefsen
Vice President - Public Policy
National Association of Mutual Insurance Companies

NAMIC Responds to CFA Report on Credit-based Insurance Scoring

“The report released today by the Consumer Federation of America purports to answer three questions about automobile insurers’ use of credit scores. But it conspicuously neglects to ask the most important question: Are credit scores useful in assessing the likelihood that a driver will file a claim? Here is the answer, according to the Federal Trade Commission, whose report is cited in CFA’s own report: ‘Credit-based insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer.’

“Yet according to CFA’s J. Robert Hunter, auto insurers charge higher premiums for drivers with low credit scores ‘just because they’re poor.”’ CFA further contends, contrary to evidence and logic, that ‘bad (unsafe) drivers from high-income areas often paid less than good (safe) drivers from moderate-income areas.’ If CFA understood the concept of adverse selection, it would know that if an insurer deliberately charged higher prices for low-risk consumers than for high-risk consumers, it would quickly become insolvent.

“This CFA report, like others in the series, will not be taken seriously by anyone who understands how insurance works.”

Lisa Floreancig
Public Affairs Director, State & Policy Affairs