View this article online: https://www.claimsjournal.com/news/southeast/2004/03/22/40334.htm
Insurance scoring is a proven, accurate, objective and consistent risk assessment tool that provides significant benefits to Florida consumers, the Florida insurance industry testified Monday at a Florida Office of Insurance Regulation (OIR) rule development workshop.
“As in other states, the Florida Legislature and Gov. Jeb Bush (R) have endorsed the use of insurance scores as part of insurers’ underwriting and rating processes for homeowners and personal automobile policies,” said Dr. Robert Hartwig, senior vice president, Insurance Information Institute, testifying on behalf of insurers. “Regulations implementing Florida’s credit scoring law should be no less clear in allowing insurers to use this powerful tool, which has helped millions of drivers save many millions of dollars in auto insurance premiums and record numbers of families in Florida realize the American dream of homeownership.”
OIR is in the process of developing Rule 69O-125.005 to establish standards and requirements for the use of credit reports and credit scores by insurers, following passage last year of SB 40-A.
Should OIR’s attempts at “protecting” consumers through its proposed regulation succeed, it could reportedly actually result in a majority of all consumers losing well-earned discounts and paying more as it will be impossible for insurers to offer many policyholders the best rates possible.
“The typical Florida family with a home and two cars, receiving an average insurance discount of 10 percent, would see their annual insurance outlay increase by $218,” said Hartwig. “The proposed OIR regulation would function as a punitive tax on people with good credit. In the aggregate, it would cost Florida consumers $3 billion or more annually, redistributed in the form of a massive subsidy to those who file the most insurance claims.”
Combined with factors such as geographical data and loss history, insurance scores reportedly enable insurers to price their products more accurately so that people who are less likely to file a claim pay less for their insurance coverage than people who are more likely to file a claim. Overall, a system that allows insurance scoring will reportedly have a pricing structure that is more fair and equitable than one that does not.
“Burdensome restrictions on the use of insurance scores will force insurers to rely on other sources of data of poor quality. For example, one out of five convictions is missing from Florida’s motor vehicle records,” noted Hartwig.
Hartwig noted that the relationship between credit standing and insurance losses is statistically irrefutable.
“Insurance scores have been shown in repeated studies across states and over time to be highly accurate predictors of future loss in both auto and homeowners insurance. There is no longer any serious scientific debate on this issue,” according to Hartwig. “Simply put, people who manage their finances well tend to also manage other important aspects of their lives responsibly.”
While insurance scores are used in conjunction with a multitude of other factors in the underwriting process, it reportedly is important to recognize that insurance scores are completely blind to an individual’s race, ethnicity, gender, age, disability, marital status, income or address.
“And despite the contentions of some insurance scoring critics, there is absolutely no credible evidence associating the use of credit-based information in insurance underwriting to adverse impacts on any socio-economic groups,” said Hartwig. “In fact, the existing evidence shows that minorities across the country are working hard to build a solid credit profile, which in turn is allowing them to buy homes and secure affordable insurance in record numbers.”
Homeownership rates in the United States – including Florida – are at reported record high levels. They are also at record high levels in central cities, and the largest gains in homeownership, by far, have been made among minorities. Hartwig noted that because insurance scoring was used in the vast majority of the homeowners insurance policies sold to homebuyers – including minority buyers – it is clear from the record homeownership rates among these groups that there is no evidence of adverse impact.
“In fact, bans or restrictions on the use of credit information by insurers in the underwriting of home and auto insurance would cause hundreds of thousands of minority families, who have worked hard over a period of many years to build a good credit history, to unnecessarily pay more for both their auto and homeowners insurance coverage,” added Hartwig.
In closing, it was said that the committee should allow all the people of Florida – people of every race, creed and color – to benefit from their good credit. The appropriate regulatory balance will reportedly assure that consumers experience the benefits of insurance scoring – such as increased competition, consumer choice and accuracy in risk assessment – while ensuring the fair and proper use of consumers’ financial information.