The use of credit information for underwriting and rating has been a staple of the risk-based pricing system for nearly 30 years. (ALM Media Archives)

There remains confusion and misinformation surrounding how and why insurance companies use credit-based insurance scores as well as several other factors such as education and occupation as predictors of future losses. Over the decades, the use of credit information has been a perennial legislative issue. This year, the Property Casualty Insurers Association of America (PCI) tracked bills in 16 states. Legislation was defeated in 13 states that would have taken a very restrictive approach or that would have banned the use of credit and such other factors as education and occupation. As of June 29, in Michigan, legislation that would ban insurance scores was still pending. Despite the vigorous debate and discussion over the years, a persistent disconnect continues to exist between proponents and opponents of insurance scoring. Critics of insurance scoring still promote the point of view that insurance scoring is unfair to certain socioeconomic groups, and it's difficult to understand or explain why it works. That's why the industry must continue to underscore that the business of insurance is about predicting the level of risk a policyholder represents and charging a premium that corresponds with that level of risk. Credit-based insurance scores have proven to be an incredibly accurate predictor of future losses. Here are five things insurance agents, brokers and consumers should understand about credit-based insurance scores. |

Commonsense approach

Two states — Alaska and Vermont — enacted legislation this year with balanced measures to protect consumers and reinforce the risk-based insurance system. Alaska addressed a longstanding problem that frustrated consumers who lost their insurance scoring discount when they renewed their policies. Vermont, which was one of a handful of states without a comprehensive law governing insurance scoring, enacted the National Council of Insurance Legislators (NCOIL) model on insurers' use of credit information. Both Alaska and Vermont took the commonsense approach outlined in the NCOIL model that balances consumer protection with the opportunity for policyholders to receive the full benefits of insurance scoring. These bills contained vital consumer protections that enable consumers to apply for extraordinary life circumstances exceptions to the use of credit information for events such as a catastrophe, serious illness, death, divorce, identity theft, loss of employment, military deployment and others. Alex Hageli ([email protected]) is the director, Policy, Research & International for Property Casualty Insurers Association of America. The opinions expressed here are the author's own. See also: 6 ways to sell more insurance in 2018 The top 100 P&C insurance companies in 2017 13 renters' insurance companies ranked highest for customer satisfaction