NAIC Testified before Congress on Use of Insurance Credit-Based Scoring
On behalf of the National Association of Insurance Commissioners (NAIC), Florida Insurance Commissioner Kevin McCarty testified yesterday before the U.S. House Financial Services Committee’s Subcommittee on Oversight and Investigations hearing titled, “The Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance.”
“Proponents argue that credit-based insurance scores are predictive of an insured’s future claims experience, and are necessary tools for underwriting and/or rating. Critics argue that the use of credit-based scores are merely another example of imposed discrimination against lower income individuals and protected classes of people,” said McCarty, who chairs the NAIC’s Property and Casualty Insurance Committee. “The state insurance regulatory community has focused on credit scoring problems, and 48 states have taken some form of legislative or regulatory action limiting the usage of credit scoring in the provision of insurance products.”
McCarty explained that the states have taken a variety of approaches on this issue:
* Some states have limited the use of credit scoring, requiring that it not be the sole rating factor used by insurers to evaluate risk.
* Some states believe that the process itself is not intended to be discriminatory, and any disparate impact based on race or ethnicity is merely coincidental.
* Some states believe that a majority of policyholders benefit from the use of credit scoring.
* Some states have taken issue with the use of credit scores and other rating criteria, such as occupation and education.
“As state regulators, it is our sincere desire that the federal government assist, not detract, from the states’ regulatory efforts to address this important issue,” McCarty said. “A more in-depth and objective study by the FTC on the relationship between credit scores and race/ethnicity is needed to determine if there is, in fact, a ‘proxy effect’ that shows a demonstrable correlation between credit scores and race/ethnicity.”
Source: Source: NAIC | Published on May 22, 2008
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