Neb. Committee Holds Hearing on Proposal to Abolish Credit Law

A national insurance group testified today against a bill to abolish Nebraska’s law regulating credit-based insurance scoring saying the practice benefits a majority of Nebraska consumers.

The Washington, D.C.-based American Insurance Association (AIA), said that the Banking, Commerce and Insurance Committee is considering LB 900, a bill to eliminate the state’s law, enacted in 2003, governing insurer use of credit. The law is based on the National Conference of Insurance Legislators (NCOIL) model that is either legislation or regulation in 25 other states. The law includes sections supported by insurers’ need to use an actuarially sound variables while adding consumer rights and protections, such as not having credit be the sole determining factor for coverage or non-renewal, the trade group said in its statement.

“According to numerous studies, a vast majority of consumers receive a discount due to insurer use of credit,” said David Snyder, AIA vice president and assistant general counsel. “Using credit information as part of the rating or underwriting process helps insurers more accurately assess, and price, for an individual’s risk, thereby reducing subsidization of bad risks by good ones, making the system fairer for everyone.”

Snyder said that numerous studies have found a majority of consumers benefit from the use of credit-based insurance scores. Most recently, the Federal Trade Commission’s 2007 study found that when scoring is used, 59 percent of people see premium decreases. A 2007 Arkansas Department of Insurance study reported that “91 percent of consumers either received a discount for credit or it had no effect on their premium” and “for those policies in which credit played some role in determining the final premium, those receiving a decrease outnumbered those who received an increase by 3.33 to 1.” Arkansas is an NCOIL state like Nebraska.

In addition to the studies that have proven consumers with better insurance scores generally file fewer claims and have lower insurance losses, credit information is completely objective and “blind” to legally prohibited factors such as race, religion, marital status and nationality. Snyder added that insurers are subject to strict legal standards for all risk classification variables, including credit, and the state of Nebraska has a strong regulatory system that has worked well for consumers and insurers.

“There is no need for any drastic action that would end up harming the market,” added Snyder.

The AIA added some facts about the property/casualty industry in Nebraska. According to their statement, Nebraska employs more than 5,000 and paid more than $37.5 million in premium taxes alone in 2006. Additionally, insurers are a major source of capital for governmental bodies in the state. According to analysis of A.M. Best data, they held $1.9 billion in Nebraska municipal bonds in 2005, approximately 22 percent of the outstanding state and local government debt in the state.

At this writing it is unclear when action will be taken at the committee level in the Nebraska legislature.

Source: American Insurance Assocation

Topics Carriers Legislation