INN's Senior Managing Editor Carrie Burns’
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• Some states have limited the use of credit-based insurance scoring, requiring that it not be the sole rating factor used by insurers to evaluate risk
• Some states believe that the process itself is not intended to be discriminatory, and any disparate impact based on race or ethnicity is merely coincidental
• Some states believe that a majority of policyholders benefit from the use of credit scoring
• Some states have taken issue with the use of credit scores and other rating criteria, such as occupation and education
The current state of credit scoring reflects the disorganized nature of state regulatory processes. But under an OFC, which would benefit consumers and insurers, a unified federal system would create a streamlined process for insurers to expand distribution and lower administrative costs, providing more product choices and more pricing options for policyholders.
There is growing support for the OFC from both traditional agent-based firms and online direct insurers.
Online direct insurers, such as
Brewe continues, “The individual state regulations represent a large barrier to entry for emerging companies like ours. For example, one state requires bar codes on ID cards, while another requires a form to be printed in a special font type and size. Obviously, this slows us down in entering states, along with other companies, meaning that consumers suffer because there's less competition, which means higher rates for insurance.”
U.S. lawmakers, consumers and insurers need look no further than the U.K. for evidence supporting a unified, federal regular system.
“As for the effect on consumer rates, the U.K. market is a great example of a single, unified national market where consumers benefit from lower prices due to very strong competition, encouraged by national regulation,” Brewe adds. “Prices are much lower in the U.K., and offers can be much more innovative and consumer-friendly, due to this regulatory aspect to their market.”
Direct and agent-based insurers also support the OFC. The NAIC’s own report shows several states believe that a majority of policyholders benefit from the use of credit scoring. Together consumers win, and in today’s economic crisis that would be welcome news for all U.S. consumers. Perhaps the recession and new White House administration will create the perfect storm to stop the debate around credit scoring and the OFC, and we may finally see some action.
Chad Mitchell is a senior analyst with
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