NAII Says 4 Ind. Bills Would Unfairly Hamper Insurance Scoring Practices

Proposed laws that severely limit or ban the use of credit-based insurance scoring-which could result in higher rates for most consumers — are gaining momentum in the Indiana Legislature.

Senate Bill 409, which would severely limit insurance companies’ use of credit data, advanced from the Senate Committee for Insurance and Financial Institutions this week. In addition, two house bills-including one that would prohibit insurance scoring- were scheduled for a vote Tuesday in the House Insurance Corporations and Small Business Committee.

“Insurance companies are increasingly using insurance scores as a more objective and fair underwriting tool in conjunction with other rating factors,” said Robert Hurns, counsel for the National Association of Independent Insurers (NAII). “We don’t want to see this valid predictor of risk eliminated when a strong correlation exists between a person’s credit history and a likelihood of insurance losses. In fact, for a significant majority of people, responsible use of credit means access to lower insurance rates, more choices and better coverage.”

Credit-based insurance scores are used in a variety of ways to underwrite and price auto and homeowners insurance. The scores indicate how a person manages his or her finances, not how much money a person has or makes.

Four bills that NAII is urging Indiana legislators to modify or reject are:

* SB 409-Under this bill, consumers who have been denied insurance, or whose policies have been canceled or not renewed, have 90 days to ask insurers for an explanation. On the flip side, insurers have only 21 days to respond to consumers’ requests. “The majority of insurance companies already notify consumers of any adverse action they take,” Hurns said. “Imposing these burdensome notice requirements will require more time and resources to fulfill, and those costs could be passed onto the consumer.” Another aspect of the bill requires insurance scoring to be used in conjunction with other underwriting methods-a provision that NAII supports. “NAII believes credit scoring works well with other underwriting criteria-such as insurance applications and motor vehicle records-to paint a complete picture of a consumers’ risk potential,” Hurns said.

*SB 149-Insurers would be banned from considering any adverse information contained in consumers’ credit reports, while positive information is permitted. “This would skew and undermine the objectivity of insurance scoring,” Hurns said.

*HB 1074-The use of credit-based insurance scores would be outright prohibited. “Blanket prohibitions on insurance scoring will ensure that the majority of policyholders will pay more than necessary to insure their cars and homes,” Hurns said. “Why eliminate an underwriting method that actually opens to door to more insurance availability and equity?”

* HB 1164-Before being able to use credit data in insurance scoring, a company’s insurance scoring method would have to be approved first by the DOI. This bill also would mandate onerous notification requirements like SB 409.

“This is over-regulation and micro-management of a company’s business,” Hurns added. “The practice of insurance scoring does not warrant such scrutiny, especially when this underwriting tool is a proven fair and objective method of determining risk. Credit should not be treated differently from any other rating and underwriting criteria.”

Topics Carriers Underwriting