|
Florida Insurance Commissioner Kevin McCarty recently
testified before the U.S. House Financial Services Subcommittee on Oversight
and Investigations in Washington,
D.C. on behalf of the National
Association of Insurance Commissioners (NAIC). The testimony was directed
towards the use of credit-based insurance scoring and how the practice may
affect insurance availability and affordability.
According to McCarty’s testimony, those in favor of the use
of credit-based insurance scores believe their usage is justified in predicting
future claims experience and are credible tools for underwriting and/or rating.
“Critics argue that the use of credit-based scores are merely another example
of imposed discrimination against lower income individuals and protected
classes of people,” said McCarty.
He went on to state, ““The state insurance regulatory
community has focused on credit scoring problems, and 48 states have taken some
form of legislative or regulatory action limiting the usage of credit scoring
in the provision of insurance products.”
McCarty, who chairs the NAIC’s Property and Casualty
Insurance Committee, explained that individual states have taken disparate
approaches to this issue. Some have
placed a limit on the use of credit scoring by stipulating that this method
would not be the only rating factor taken into consideration in risk
evaluation. Others believe that the
process in and of itself is not meant to be discriminatory by nature and that
any negative impact on race or ethnicity is sheer coincidence. Some states have taken issue with the use of
credit scoring as well as the use of other rating criteria such as occupation
and level of education. Several states are convinced that the use of credit
scoring can be of benefit to the majority of policyholders.
“A more in-depth and objective study by the FTC on the
relationship between credit scores and race/ethnicity is needed to determine if there is, in fact,
a ‘proxy effect’ that shows a demonstrable correlation between credit scores
and race/ethnicity,” said McCarty. He
also indicated that it was the “sincere desire” of the NAIC that the federal
government aid, not encumber, his organization’s efforts to deal with this
“important issue.”
|
