Posted on 14 May 2010
Dave Snyder, vice president and associate general counsel for the American Insurance Association (AIA), testified today before the U.S. House of Representatives Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit. Mr. Snyder’s testimony focused on the use of credit-based insurance scores by property-casualty insurers to more accurately assess and price risk for underwriting purposes. The hearing was entitled, “Use of Credit Information Beyond Lending: Issues and Reform Proposals.”
Mr. Snyder’s oral testimony is below:
"In the midst of the financial turmoil and its related chaos, the US property and casualty insurance sector is stable, secure and strong. There are good reasons for this. We, you and the states never lost sight of our fundamental shared goals: reduce risk where possible, accurately assess and assume the remaining risk, and provide effective coverage to the American people. As a result, auto and homeowners insurance markets are, by every measure, financially sound, competitive and affordable. Claims are being paid daily by solvent companies; the market is very competitive by any measure; and insurance is taking less of a bite out of household incomes than in the past. This is good for the economy, because this maximized competition forces prices down to their lowest feasible level, so people have money to spend on other things.
Insurance scoring has played a major role in creating this positive market for all concerned. By empowering more effective risk assessment and pricing, the majority of the population pays less. Insurance is more available and more people can receive reasonably priced coverage instead of being relegated to the high risk pools, because insurers have a cost effective tool to assess and price for risk, giving them the certainty that they need to provide coverage to nearly everyone.
You have asked us to address certain issues relating to insurance scoring. In summary, it is race and income blind and has repeatedly proven to be an accurate predictor of risk. The states have actively regulated it and insurance commissioners have full access to all the information they desire.
In response to your request for recommendations, we suggest that all states adopt the NCOIL model law. The states should make sure they capture and analyze all of the credit complaints they can and communicate with insurance companies about them. In addition, we all need to work together more effectively on financial literacy to help the American people understand how insurance scoring is used by Insurance companies to provide them with coverage.
One other factor in the strength of the personal lines insurance market is that we have reduced risk. Thanks to your leadership and that of safety groups, the insurance industry and the states, far fewer Americans are injured and killed on our highways than would ever have been expected. Using fatality rates of 1960, each year we are saving lives and preventing injuries. This has created a solid foundation of the healthy auto insurance system we have today.
Now, the insurance industry is focused on building safety, as never before, through advocacy of smoke detector laws and codes requiring sprinklers and disaster resistant buildings, and the eminent opening of a building construction test center with wind turbines powerful enough to test the structural integrity of buildings. We hope to see a pattern of positive change similar to that which we helped bring about in auto safety.
Thank you for inviting me to speak with you today."