Auto-Insurer Review Pared Back

It is important to understand the factors that go into the scores which impact your insurance premiums. Insurers and regulators continue to debate as this article indicates.

Joan Dowd-Liebrock


By LESLIE SCISM
Wall Street Journal Online

State regulators are scaling back a planned survey about the impact of credit scores, education levels and occupations on rates insurers charge individual policy holders, amid insurer complaints about the cost and comparability of data being sought.

“We are reducing the number of inquiries,” though the goal remains to gather detail that lets regulators size up “the actual dollar impact of specific rating factors on a consumer’s premium,” said Michael McRaith, director of insurance in Illinois and head of a key property-casualty committee at the National Association of Insurance Commissioners.

Previously, regulators considered seeking a wide range of statistical data and other material about rate methodologies. Under the revised plan, the focus will be asking insurers to provide rates for a hypothetical set of consumers.

The move followed a daylong hearing last week in Kansas City, Mo., at which insurers objected on numerous grounds to regulators’ plans to revisit the longstanding but controversial use of credit-related factors.

The proposed survey is an outgrowth of concerns raised by consumer groups in 2008 amid the worsening economy that families struggling financially will face higher insurance costs on top of lost jobs and homes. Some consumer groups have advocated a moratorium on the use of credit histories in underwriting car, home and health insurance.

Insurers’ credit-based “scores” are variations of those used by banks and other lenders. They have been in use since the 1990s, and insurers maintain they are one of the best tools they have for predicting claims costs.

Many insurers also have factored in education levels and occupations—such as asking about the rank of a soldier.

Among reasons speculated for the usefulness of credit-related factors in pricing insurance is that people with better credit histories may have more financial flexibility to pay some claims costs out of their own pockets, an option perhaps unavailable to a cash-strapped consumer with a poor credit record. Consumer groups say fairness and public-policy issues need to be addressed.

Birny Birnbaum, a consumer advocate with the Center for Economic Justice, said his organization is disappointed with the pace of activity since 2008. “We’ve pretty much lost any confidence that the insurance regulators will take any action on credit scoring,” Mr. Birnbaum said.

At the hearing, insurers raised concerns about the regulators’ original plan for a broad survey involving a large amount of data, questioning the ability of regulators to assure confidentiality of any proprietary information they would turn over and whether regulators would be able to compare information across companies once they went through the cost of compiling it.

“We still question the overall need for more study, data collection and examination” of using credit variables, Neil Alldredge, a senior vice president with trade group National Association of Mutual Insurance Companies, said in an interview. But the scaled-back survey represents a “vast improvement over the original proposal,” he said.

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One Response to Auto-Insurer Review Pared Back

  1. It is also difficult to dictate how much a person’s insurance goes up based on damages in accidents, as those can also be highly controversial.

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