NAII Says Conn. Bill is Redundant, Unnecessary

March 19, 2003

A Connecticut bill that would prevent insurers from using credit scoring in insurance underwriting and rating will do nothing to
protect consumers, who are already protected against abuses by existing federal and state laws and regulations, according to a national association.

“H.B. 5490, which states that no auto insurance rate or premium may reflect an individual’s credit history, is redundant and unnecessary,” Gregory LaCost, counsel for the National Association of Independent Insurers (NAII), said.

In written testimony to the Senate, NAII pointed out that the Federal Fair Credit Reporting Act (FCRA) authorizes the use of credit reports “in connection with underwriting insurance involving the consumer.”

“As part of their underwriting process, insurers use credit-based insurance scores to evaluate the likelihood of an insured loss,” LaCost said. “Insurers use such scores differently from banks and other financial institutions. Insurers use the date to achieve the long-standing underwriting goals of objectivity, completeness, equity, efficiency and profitability.”

Studies have reportedly shown a true correlation between insurance scores and risk of insurance loss; and insurance scores do not discriminate against low-income consumers or minorities and are at least as accurate as other sources of information such as motor vehicle records and claim reports, LaCost wrote.

“The State of Connecticut Insurance Department has wisely set up rules governing credit scoring or measurement systems by requiring extensive documentation and spelled out unacceptable uses of credit information,” LaCost said. “We believe these rules adequately protect the insurance consumer.”

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