A recent hearing on the use of credit-based insurance scores held by the National Association of Insurance Commissioners afforded proponents and opponents of the issue a chance to air their views.

Birny Birnbaum, executive director of the Center for Economic Justice, testified that the increasing use of credit scores was threatening to undermine the very concept of insurance — the pooling of risk.

“In recent years, risk classification has become more and more detailed, with more and more rate levels, more rating factors and more categories within rating factors,” Birnbaum said. “As risk classification becomes more and more detailed, the spread of prices increase as the cost for the most desirable policyholder goes down and the cost for the most undesirable policyholder goes up. Risk classification taken to the extreme is the end of insurance – a pay-as-you-go system in which those who pose no risk pay little or nothing and those who have a claim pay the cost of the claim.”

Insurance industry representatives hit back, contending that the credit score is just one of many criteria used in underwriting and pricing decisions.

“Self-styled consumer advocates bear the burden of proof to back their allegations that large numbers of consumers are harmed by credit-based insurance scores because the studies, today’s testimony and the fact that complaints remain low would prove otherwise,” said David Snyder, VP and associate general counsel, American Insurance Association. “The fact is a majority of consumers directly benefit from credit-based insurance scoring.”

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