Washington, D.C.– The National Association of Mutual Insurance Companies (NAMIC) pointed to a new government report showing a direct correlation between credit scoring and risk. A study released by the Federal Reserve Board comes on the heels of a report by the Federal Trade Commission (FTC) that also said credit scoring is not unfairly discriminatory.
“Once again, the federal government has undertaken an exhaustive study of credit scoring and whether it unfairly discriminates against certain population groups for higher rates on insurance and other financial products,” says Carl Parks, NAMIC’s senior vice president for government affairs. “Once again, the government found that credit scoring is generally not a proxy for race or ethnicity.”
Parks pointed out that the latest report on credit scoring used different data from that in the FTC’s report. “Despite using a different data set, the conclusions reached by the Federal Reserve were the same as the FTC’s,” Parks said. “This should put to rest, once and for all, the notion that credit scoring is anything less than a valuable tool for predicting risk that helps lower rates of financial products—including insurance—for the majority of Americans.”
Concurrently, in a recent INN article, experts agreed with these findings, additionally noting that credit ratings are just one of many factors carriers consider when they set rates.
"Increased use of credit information is a fact of life," says Claire Wilkinson, vice president of the Insurance Information Institute in New York. "It's a proven, reliable indicator of performance in many trust-based relationships."
Industry experts in the article maintain that the majority of customers—though an admittedly narrow majority—saves money thanks to credit scoring. Insurers also argue that the way consumers manage credit is a reliable indicator of responsibility and, consequently, of habits less likely to result in claims.
Sources: NAIMC and INN archives
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