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NAIC Group Approves Language Questioning Insurance Scoring, NAII Protests

The Credit Scoring Working Group of the National Association of Insurance Commissioners has approved language in a consumer education brochure that questions the fairness of...
January 28, 2003

The Credit Scoring Working Group of the National Association of Insurance Commissioners has approved language in a consumer education brochure that questions the fairness of insurance (credit) scoring, prompting a protest from the National Association of Independent Insurers (NAII). The controversy erupted January 23, 2003, following a conference call of the Working Group. The Working Group rejected NAII's objection and kept the question in the brochure.

NAII, which participated in the conference call, cited concern about the question in the draft consumer brochure that said, "Does using credit information penalize minorities or low-income consumers?" In answer, the brochure language reads, "We do not know. Statistical studies have not conclusively determined whether insurance credit scoring disproportionately affect minorities or the poor. Insurance regulators nationwide are currently examining this issue.
 
"Consumer groups worry that insurance credit scores will be lower for low income and minority groups," the brochure continues. "Consumer groups also point to the fact that most insurers and insurance credit scoring model vendors will not make their insurance scoring models public so consumers can see how they use credit data to calculate a score.''

NAIC spokesperson Michele Compton said the actions of the Working Group will be considered by the NAIC Market Regulation and Consumer Affairs Committee at the organization's March meeting in Atlanta and go before the full membership in June. She said there could still be modifications, but that is unlikely. Meanwhile, a just-released limited study by the Washington State Insurance Commissioner's Office has found use of credit scores to evaluate auto insurance risks can have an unequal impact on persons who are younger, poorer and members of a racial minority group.

What It Means to Agents:  On March 17, 2002, PIA adopted an updated policy position on insurance scoring that sets out a series of common sense principles for consideration by the NAIC and carriers. PIA does not legally question or oppose carriers using and making underwriting decisions with scoring and other underwriting tools. Instead, PIA believes insurance scoring should not create unintended effects, impose cost burdens or otherwise disadvantage PIA members, their carriers and clients. PIA will continue to work with the carrier trade associations, PIA affiliates, regulators, legislators, and consumers to resolve conflicts and increase understanding of insurance scoring uses.