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NAIC Suspends Judgment on Credit Score Factor

By Sally Maison
Published: Wednesday, September 30th, 2009

The National Association of Insurance Commissioners (NAIC) said they need more data before they can finally make their judgment on the use of credit score as an underwriting factor. A couple of days ago, the insurance regulators met in Maryland to discuss the dubious practice of insurers. They say that they want to know more about the practice first and how it is actually used in determining insurance cost before they make their conclusion.

NAIC Suspends Judgment on Credit Score FactorThe meeting in National Harbor ended in what may have been called a draw, as both Property and Casualty Committee/Market Regulation and Consumer Affairs Committee decide to hold their judgment before they teleconference again in a month. More data is needed as regulators said that they are frustrated with the way their questions are being dealt with. They noted that insurance companies and credit agencies avoid giving direct answers which keeps the NAIC from fully understanding the issue. Regulators commented that they got rhetoric and semantics instead, adding that if insurers continue to answer like they did, the inquiry will prolong up to six months.

Last Thursday’s meeting focused primarily on whether providers of credit-based insurance scores, such as Fair Isaac (FICO), should be regulated as advisory organizations. This will limit the weight of credit scores in determining insurance cost, a proposal which is vehemently opposed by both insurers and scoring agencies.

Insurance companies and scoring providers argued that such actions are not necessary, since regulators can already access the scoring models themselves. They add that state laws prevent scoring agencies from qualifying as advisory organizations.

However, critics say that the debate on the regulation of scoring agencies should not have been the priority during the meeting. They commented that it is merely a distraction from the real issue, which is the insurance score. Critics add that the regulators should focus more on collecting independent data about the insurers’ use of credit information.

The discussion will resume again in four weeks as regulators bring in more data. Regulatory authority will be used if necessary to collect the information NAIC needs in the inquiry.

The series of inquiry began last March as consumers and advocates raise concerns about the way insurers use credit-based scoring systems in determining insurance rates. It is also used by carriers in rejecting and approving applicants.

Meanwhile, NAIC plans to look into other dubious insurance factors, such as marital status, in the near future. This is part of their campaign to protect consumers and prevent abuse in cost.

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