Canadian Underwriter

U.S. credit scoring study proceeds despite insurer opposition

May 6, 2004   by Canadian Underwriter

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A study of credit scoring undertaken by several U.S. states is moving forward despite opposition from various insurer groups.
The Property Casualty Insurers Association of America (PCI) confirms major personal lines carriers have already received initial calls from insurance departments this week.
“From the limited information regulators have shared with us, this study appears to be a conclusion in search of facts,” says PCI senior vice president Robert Zeman. The study is looking at whether there is a link between credit scores and low-income or ethnic groups and if credit scoring as an underwriting tool disadvantages these groups.
PCI says the study is flawed because it does not address the link between credit scores and loss ratios a link which has been shown in various studies.
States involved thus far include Alabama, Indiana, Kansas, Louisiana, Maryland, Montana, Nevada, Oregon, Washington and West Virginia, led by Missouri. Missouri has already conducted its own study, which came under intense attack by insurers.
Michigan is also involved, although this week Michigan Governor Jennifer Granholm proposed an outright ban on credit scoring for the state. Granholm says she will bypass legislation and institute the ban through the Michigan Insurance Department.
The National Association of Mutual Insurance Companies (NAMIC) says the ban flies in the face of underwriting data suggesting the link between credit scores and loss ratios, and also the Fair Credit Reporting Act (FCRA) which allows insurers to use credit information in underwriting.
“If implemented, this rule will raise, not lower, rates for consumers in Michigan,” says NAMIC state affairs director Neil Alldredge.
Zeman adds the states undertaking their own study, could instead be involved in the Federal Trade Commission (FTC) study of credit scoring, set to take place over the next 18 months, as part of the FCRA.