AAI Says Proposed Ind. Credit Scoring Restrictions Could Do More Harm Than Good

A measure placing additional restrictions on insurer use of credit scores that passed an Indiana House panel late last week could harm an already healthy property/casualty market, thereby harming consumers, according to the Alliance of American Insurers (AAI).

The bill, HB 1213, would prohibit an insurer from denying, canceling or non-renewing an insurance policy, or basing a rate of personal insurance, solely on the basis of credit information. It now goes before the full House.

“The Alliance realizes the need to balance concerns for consumer protection and the legitimate business needs of insurers; however, the additional restrictions incorporated into HB 1213 may do the market more harm than good,” wrote Bill Schroeder, vice president of the Alliance’s Midwest Region, in testimony submitted to the Indiana House Committee on Insurance, Corporations and Small Business Jan. 23.

“Indiana has a healthy, competitive insurance marketplace where many insurers desire to write business and where consumers benefit from this competition. Additional restrictions on an insurer’s ability to use an objective, actuarially proven underwriting and rating tool such as credit information could adversely affect this,” he explained. “Without the ability to use credit as a rating tool, insurers may be more hesitant to write new business, and some policyholders will be required to unfairly subsidize others.”

Schroeder added that insurer use of credit information “already is well regulated.” The federal Fair Credit Reporting Act, enacted in 1970, gives insurers the right to consider credit information and ensures that applicants and policyholders receive notification and access to information when such information is considered. “In addition, the federal Equal Credit Opportunity Act provides that once income level, address, ethnicity, religion, gender, familial status, nationality, age and marital status is NOT considered within a credit score calculation, he said.”

On the state level, current Indiana law specifically prohibits insurers from charging higher rates based on a bankruptcy filing. In addition, the insurance commissioner is able to monitor insurers practices through market conduct surveys and the filing approval process.

“The Alliance believes that insurers should be able to consider credit information in their underwriting and rating decisions,” Schroeder said. “Credit history and credit-based insurance scores are fair and accurate tools that allow insurers to rate risks with greater certainty, to the ultimate benefit of consumers who are charged rates that more accurately reflect their risk of loss.”