NAII Counsel Responds to MO News Article on Credit Scoring

Ann Weber, General Counsel for the National Association of Independent Insurers, has written an open letter to Will Connaghan, the Editor of the St. Louis Daily Record in response to an article that appeared in the December 13th Issue entitled “Real estate experts question insurance scoring.”

The article, Weber wrote, “may have left readers with the impression that the use of insurance scores is not in the best interest of consumers. There are some real estate professionals that have misperceptions regarding insurance scoring and I would like to add some clarity to how and why insurers use this highly predictive tool.”

Weber detailed the essential facts concerning credit scoring as follows:
— There is a proven statistical relationship between insurance scores and risk of loss, insurance scoring helps most people pay less for insurance, and factors such as income, race, gender, marital status or birthplace are not used to determine an individual’s score.

— Research has determined that factors used to develop an insurance score such as collections, bankruptcies, outstanding debt, and length of credit history correlate very strongly with insurance losses. This connection between insurance scores and risk of loss has been noted in several independent studies, research conducted by state insurance regulatory agencies and by the actual experience of insurance companies.

— Actuarially, insurance scores offer one the best assessments of insurance risk. When used with other factors such as previous accidents and type of car or home in the underwriting and rating process insurers develop a more complete picture of a policyholder’s risk of loss. This ensures that customers who are less likely to file a claim pay a lower premium that those who are more likely to file a claim. The result of this process means that the vast majority of consumers who have favorable insurance scores (and a lower chance of loss) are not forced to subsidize rates for the smaller number of higher risk consumers. This is not only a sound business practice it is fair, reasonable and benefits most people.

— Insurance scores have no relation to a person’s income level. Studies show that there is great similarity in the average insurance score for all income groups. Insurance scores reflect only on how well an individual manages their assets. The perception that insurance scoring is new way to unfairly discriminate against low income consumers is simply not supported by the facts. The reality is that insurance scores help insurers write business by providing them with an additional tool to fairly and accurately underwrite and price coverage.

“The bottom line facts are that insurance scoring reduces the cost of insurance for most consumers and makes pricing fair and object for all customers,” Weber concluded.

Topics Missouri