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A New Model for Credit Scores For Insurance Regulators

By Sally Maison
Published: Tuesday, April 6th, 2010

ASIMRM-00004272-001One of the hottest topics doing the rounds for quite a while is the use of the credit score to determine the eligibility for the home loan or auto loans. People are also debating if determining the amount and rate of interest based on the credit score is a wise thing to do. It is surprising to see that the insurance regulators are trying to tackle, albeit weakly.

The National Association of Insurance Commissioners has taken a small step, referred by most as the “baby” step, in the direction of tackling credit score abuse by money lenders and other financial institutions. This association of insurance commissioners has given a go-ahead to the request to create a new model that will help regulate the credit information sellers to provide data to the insurers. This is the information that is that is given to all people including private investigators, financial institutions, department stores and even landlords.

Equifax, Transunion and Experian, who rule the credit report and credit score industry, have a big say in deciding whether you get to buy your dream house, opt for the car you have always desired or go in for an LCD or plasma TV. Almost in all the states of the country, insurance providers use the credit score to decide if you will prove to be an asset to the company or a financial liability on the road. State Farm and All State, main insurance players in most states, consider the credit score too before issuing an auto insurance policy in your name. According to many surveys that have been conducted in the recent past, a person who does not have a good credit score tends to think more about balancing checks for the month  while driving rather than concentrating on the traffic on the road. There are numbers and data that stand proof to this fact as well.

While most of the states encourage this practice of considering credit scores, there are states like California that do not encourage this since the officials see it as another hindrance to obtaining a necessity of life.

The National Association of Insurance Commissioners comprises of a large number of commissioners and superintendents who head innumerable insurance programs in their respective states. The “model law”, for the credit information sellers, will have to first gain approval from the NAIC and every state individually before it can come into effect.

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