The Ohio Department of Insurance announced that it will conduct a review of Ohio insurance companies to inquire about the industry’s current use of credit scoring and how companies are moving toward complying with a new regulation that went into effect June 12, 2003. Companies must be in full compliance by Sept. 12. The review will begin in August and consist of a sample of randomly selected companies licensed to conduct business in Ohio.
“The use of credit scores in the insurance industry is a controversial practice which needs to be monitored,” Insurance director Ann Womer Benjamin said. “This proactive approach will aid us in determining whether insurers are complying with Ohio’s credit scoring rule and evaluating whether Ohio consumers are being treated fairly.”
The Department will analyze companies’ policies and procedures in relation to the use of credit scores in the underwriting and ratemaking process and how insurers are preparing to comply with the new regulation. If necessary, the Department may further review insurance companies’ credit scoring practices.
“Credit scores” are numbers or ratings that insurance companies use for the purpose of predicting future insurance loss exposure based in part on a consumer’s credit history, creditworthiness, credit standing or credit capacity. Credit scores are developed through statistical methods that measure the correlation between an individual’s credit-related information and the potential for future insurance claims.
The Joint Committee on Agency Rule Review (JCARR) approved the new regulation in May. The rule prohibits insurance companies from using a consumer’s credit score as the sole criterion for rating or underwriting personal auto and homeowners insurance policies. The new rule will also require that certain disclosures be made to consumers by insurers, including an explanation of credit report findings that can contribute to a higher rate or rejection of coverage.
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