Do Insurers You Work With Evaluate Client Credit Scores?

The National Association of Insurance Commissioners is currently requesting feedback from car insurance companies about their use of consumer credit scores to determine policy rates, and the companies aren't happy about it.

At a public hearing with the NAIC's Property and Casualty Insurance Committee on Sept. 30 in Kansas City, Mo., insurance carriers defended their use credit scores to asses risk and opposed filling out surveys that would show, in addition to credit scores, how they weigh all factors like age and gender.

According to a statement by Illinois Insurance Director Michael T. McRaith in testimony to the House Subcommittee on Financial Institutions and Consumer Credit:

"There are a variety of views on the use of credit scores, but state insurance regulators are interested in providing factual information to this public policy debate," said McRaith, who is Chair of the NAIC Property and Casualty Committee. "To better protect consumers, regulators are conducting a multi-state data call to collect how rates are developed, the variables involved in determining an insurance score and the weight assigned to each variable.

Each state regulates how auto insurance companies can use credit scores differently. Louisiana, along with 26 other states, uses a National Conference of Insurance Legislators model that allows the use of credit scores to determine policy rates.

More states are comtemplating bans on insurance companies' use of credit scores to determine the eligibility of, or premiums for, an applying consumer. Louisiana legislators have thus far chosen to allow the practice to continue, but its possible another bill proposing such a ban to reemerge in the next few sessions.

Jim Donelon , Louisiana commissioner of insurance, said he doesn't see anything wrong with the practice statement in Insurance Newsnet Magazine: "If we banned the use, as has been tried legislatively in Washington and Michigan, then those with good credit scores will pay more and those with bad credit will pay less," he said.

Have your clients or customers questioned the review of their credit history? If your company practices the review of credit histories do you think it is helpful, or too much of a negative to be worthwhile? Please comment.