Florida OIR Charges Ahead with Credit Score Workshop
Give the Florida Office of Insurance Regulation (OIR) credit, it has been a good listener when it comes to questions and concerns on the role of credit scoring.
During a rule development workshop last month in Tallahassee, the OIR listened to a number of viewpoints on the subject.
Julie Pulliam, American Insurance Association public affairs director for the Southeast region, told Insurance Journal Southeast “AIA believes that the Florida Office of Insurance Regulation, which is charged with developing a rule to implement last year’s credit scoring law (SB 40-A), has developed draft rules that go beyond the authority granted by the Legislature regarding the use of credit for insurance rating and underwriting. As it stands, the draft rules don’t follow the intent of the Legislature. They impose standards on the use of credit that go far beyond the standards spelled out in the legislation. Several of the requirements are simply impossible for insurers to meet, and the number of requirements goes way beyond anything currently required for other rating variables. The effect of the OIR draft rules would be to limit insurers’ use of credit and therefore limit the benefits that consumers gain from the use of this risk evaluation tool.”
Insurance scoring is a proven, accurate, objective and consistent risk assessment tool that provides significant benefits to Florida consumers, according to the Florida insurance industry representatives who testified.
“As in other states, the Florida Legislature and Gov. Jeb Bush (R) have endorsed the use of insurance scores as part of insurers’ underwriting and rating processes for homeowners and personal automobile policies,” Dr. Robert Hartwig, senior vice president of the Insurance Infor-mation Institute, said, testifying on behalf of insurers. “Regulations implementing Florida’s credit scoring law should be no less clear in allowing insurers to use this powerful tool, which has helped millions of drivers save many millions of dollars in auto insurance premiums and record numbers of families in Florida realize the American dream of homeownership.”
As noted, OIR is in the process of developing Rule 69O-125.005 to establish standards and requirements for the use of credit reports and credit scores by insurers, following passage last year of SB 40-A.
Should OIR’s attempts at “protecting” consumers through its proposed regulation succeed, it could reportedly actually result in a majority of all consumers losing well-earned discounts and paying more as it will be
impossible for insurers to offer many policyholders the best rates possible.
“The typical Florida family with a home and two cars, receiving an average insurance discount of 10 percent, would see their annual insurance outlay increase by $218,” Hartwig continued. “The proposed OIR regulation would function as a punitive tax on people with good credit. In the aggregate, it would cost Florida consumers $3 billion or more annually, redistributed in the form of a massive
subsidy to those who file the most insurance claims.”
Combined with factors such as geographical data and loss history, insurance scores reportedly enable insurers to price their products more accurately so that people who are less likely to file a claim pay less for their insurance coverage than people who are more likely to file a claim. Overall, a system that allows insurance scoring will allegedly have a pricing structure that is more fair and equitable than one that does not.”
“Burdensome restrictions on the use of insurance scores will force insurers to rely on other sources of data of poor quality. For example, one out of five convictions is missing from Florida’s motor vehicle records,” Hartwig continued. Hartwig noted that the relationship between credit standing and insurance losses is statistically irrefutable. “Insurance scores have been shown in repeated studies across states and over time to be highly accurate predictors of future loss in both auto and homeowners insurance. There is no longer any serious scientific debate on this issue. Simply put, people who manage their finances well tend to also manage other important aspects of their lives responsibly.”
Homeownership rates in the United States—including Florida—are reported to be at record high levels. They are also at record high levels in central cities, and the largest gains in homeownership, by far, have been made among minorities. Hartwig noted that because insurance scoring was used in the vast majority of the homeowners insurance policies sold to homebuyers—including minority buyers—it is clear from the record homeownership rates among these groups that there is no evidence of adverse impact.
“In fact, bans or restrictions on the use of credit information by insurers in the underwriting of home and auto insurance would cause hundreds of thousands of minority families, who have worked hard over a period of many years to build a good credit history, to unnecessarily pay more for both their auto and homeowners insurance coverage,” Hartwig said. “This committee should allow all the people of Florida—people of every race, creed and color—to benefit from their good credit. The appropriate regulatory balance will assure that consumers experience the benefits of insurance scoring—such as increased competition, consumer choice and accuracy in risk assessment—while ensuring the fair and proper use of consumers’ financial information.”
OIR Spokesperson Robert Lotane told IJ Southeast, that the OIR heard from four speakers “and it would be fair to say two were opposed to the use of credit scores and two were in favor of the use of credit scores. Both sides provided very thoughtful presentations filled with a variety of data for our office to consider and we certainly appreciate their efforts in helping us best implement this statute. We have had a number of filings that have used credit scoring in their underwriting and/or pricing,” Lotane continued. “During the period that we have been moving forward in developing the rule for implementing the statute, we have required carriers to certify that they are following statutory guidelines and have had them submit their credit scoring models with their filings.”
Lotane said following the (March 22) workshop, the OIR ” will allow ten more days for any testimony to be submitted. Following that we will (if there is substantial change to the rule we would conduct another workshop) hold another hearing and promulgate the rule with the Secretary of State and then the Financial Services Commission (Cabinet) would vote it into the administrative code (or not). However, if there is formal objection at the hearing, the matter could be brought before an administrative law judge for a recommended order and we could then change it or not. If there is still opposition then it could be brought before the District Court of Appeal. If heard there, that would be a
binding opinion.”
When asked if finalizing this matter appears to be taking a longer than expected pace, AIA’s Pulliam remarked, “As to why progress has been so slow, that is a question better put to OIR. The law took effect Jan. 1, so insurers are trying to comply with a law that has yet to be fully implemented through the regulatory process. We are now in the process of responding to OIR’s second draft rule.”