Kan. Enacts Fair Credit Scoring Law, Alliance Says

April 18, 2003

The Alliance of American Insurers (AAI) reports it is pleased with the enactment of a Kansas law that will continue to allow insurers to use consumer credit histories in underwriting and rating policies.

The law requires insurers to tell the Kansas Insurance Department how they use consumers’ personal credit histories to determine insurance rates or whether to cancel policies. Many insurers now use credit histories to decide whether to issue consumers insurance and what to charge.

“This law is a fair compromise for both consumers and insurers,” said Lynn Knauf, a policy manager in the property/casualty department of the Alliance. “We are pleased that insurers will still be able to use credit scoring – an accurate and non-discriminatory underwriting and rating tool – since it is clearly in the best interests of everyone to allow insurers to accurately evaluate and price their business. This is the best way for consumers to receive lower rates based on their favorable credit records.”

Formerly HB 2071, the new law is substantially based on the National Conference of Insurance Legislators’ (NCOIL) Model Credit Scoring Act, but includes a requirement that the insurance commissioner complete a study on the effects of credit scoring in insurance. The law becomes effective Jan. 1, 2004.

This result is much better than a previous attempt to regulate credit scoring. “The industry dodged a bullet when an earlier credit scoring bill, SB 144, was defeated on the House floor following intense lobbying by Alliance counsel,” continued Knauf. “That bill would have required the commissioner to complete a much more costly study on the impact of credit scoring on ‘protected classes,’ with the total cost borne by insurers.”

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