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More States Reject Bans on Credit-based Insurance Scoring, PCI Responds

Source: PCI

Posted on 16 Mar 2009

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Connecticut and Maryland are the two most recent states to reject legislative efforts to prohibit insurers from using credit-based insurance scores. The Property Casualty Insurers Association of America (PCI) testified against the bans in both states and is working across the country to ensure consumers continue to benefit from this underwriting and rating process that helps insurers to more accurately price and actually write more policies.

There is a strong connection between credit information and risk of loss. As a result, the use of credit information enables insurers to make more accurate predictions about which consumers are likely to experience claims. This high level of predictability is why credit information is an important underwriting component for many insurance companies. By using credit information with other factors, low risk consumers can be better identified and pay less for insurance.

However, each year several states consider banning credit information. As of March 13, 2009, 19 states, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Maryland, Minnesota, Missouri, Mississippi, Montana, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, South Carolina and Texas have introduced legislation to ban the use of credit this year.

Already this year, legislators have rejected attempts to ban credit in Connecticut, Indiana, Maryland, Mississippi, Montana and North Dakota. We are confident that public policymakers will see the value of risk-based pricing and recognize it is the fairest process to use for insurance underwriting and rating.

Michigan Disapproves Insurance Rate Filings

On the regulatory front, the Michigan Office of Financial and Insurance Regulation announced March 10, that it has started disapproving insurance rate filings made by automobile insurance companies that use insurance credit scoring as a factor in determining their premiums. PCI continues to work in partnership with others in the industry to provide Michigan officials with strong evidence regarding insurance scorings consumer benefits.

PCI Addresses Concerns in Iowa

PCI also testified before Iowa Consumer Advocate Angel Robinson outlining for her the many benefits of insurance scoring. PCI addressed concerns that current economic conditions are leading to a deterioration in credit scores, in turn leading to a deterioration in insurance scores. PCI’s Manager of Personal Lines Alex Hageli explained that scores actually tend to increase during economically challenging times. As a result, consumers not only continue to enjoy savings on their premium as a result of their good credit, they could even see a further decrease in the cost of their insurance.