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PCI Protects Consumer Benefits of Insurance Scores:
2010 Legislative Update on Use of Credit
PCI continues to be a strong defender of underwriting criteria such as credit-based insurance scores which are an accurate and fair predictor of risk of loss. Lower-risk policyholders should not have to pay the same rates as higher-risk policyholders for home and auto insurance, so it is important for insurers to accurately predict each policyholder’s likelihood of filing claims and price coverage accordingly.
Although bills to ban or further restrict the use of insurance scoring were introduced in 24 states this past year, all such measures were rejected or otherwise failed to gain traction with lawmakers. PCI continues to work with lawmakers to help them better understand how insurance scoring works and the negative effects a ban would have on consumers.
This year PCI worked with lawmakers in Connecticut, Iowa and Kansas to help insurance consumers by providing additional protections regarding the use of credit information. All three states adopted the extraordinary life circumstances (ELC) language recently added to the National Conference of Insurance Legislators model act. In addition, Connecticut and Kansas passed new laws that more closely follow the federal standards regarding when adverse action notices must be sent to consumers. This improvement will make these notices more meaningful by not forcing them to be sent to customers who otherwise benefit from insurance scoring but did not get the best possible rate offered by a company.
In Congress, the House Subcommittee on Financial Institutions and Consumer Credit (a subcommittee of the House Financial Services Committee) held a hearing in May on “Use of Credit Information Beyond Lending: Issues and Reform Proposals.” The committee did not take any action and there is no pending federal insurance scoring legislation.
Most recently, consumers scored a victory in July when the Michigan Supreme Court struck down regulations banning the use of insurance scoring. The decision comes after years of litigation over the question of whether the Office of Financial & Insurance Services exceeded its statutory grant of authority in issuing a blanket ban on the use of credit. Consumers will now continue to enjoy the benefits of insurance scoring as existing Michigan law only allows credit to be used to provide a discount.
Additional Information
Credit Scoring Fact Sheet
White Paper: Banning Credit-based Insurance Scores Would Hurt Main Street USA
White Paper: The Predictive Value of Credit-based Insurance Scores
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