NAII Lauds S. Dak. Credit Scoring Rules

South Dakota’s Division of Insurance has adopted new rules governing the use of credit based insurance scoring that the National Association of Independent Insurers indicates “strikes a balance between reasonable consumer protections and insurers’ use of this highly effective tool for underwriting and rating insurance policies.”

“The South Dakota Division of Insurance has adopted a fair and reasonable approach to insurance scoring,” stated NAII counsel Laura Kotelman. “Insurance Director Darla Lyon found consensus on this issue through a series of meetings with key stakeholders during the spring and summer. The resulting bulletin permits insurers to use insurance scores and establishes guidelines for insurers to follow when there is insufficient information to develop a score for a consumer.”

She pointed out the NAII’s role in formulating certain points of the debate over the proposed rules contained in the measure, HB1117, which included meetings with insurers, agents and the Division of Insurance.

“This process allowed the division to address concerns, learn more about the requirements of the federal Fair Credit Reporting Act (FCRA), resolve the “no-hit” issue and gain a better understanding of how scores are developed from vendors such as Fair, Issac and ChoicePoint,” Kotelman continued.

“Bulletin 2002-3 permits the use of insurance scoring but prohibits insurers from using insurance scores as the sole reason for non-renewal or refusing to write a new policy. In addressing consumers with no credit history, the insurer has the option of treating the applicant or insured as if he or she had a neutral score, excluding credit as a factor, or proving to the director of insurance that the absence of a score relates to increased risk for the insurance company,” said the NAII.

The regulations contained in the bulletin are scheduled to become effective January 15, 2002 and will apply to both homeowners and auto insurance. ‘With the implementation of the bulletin, it is anticipated that there will not be legislation introduced in the upcoming session,” the NAII announcement concluded.