PCI Opposes Massachusetts Credit Scoring Bill

During a hearing before the Massachusetts Joint Committee on Insurance yesterday, the Property Casualty Insurance Association of America (PCI) expressed opposition to a bill seeking a total ban on the use of credit-based insurance scores in Massachusetts for auto and homeowners' insurance rate-making.

The bill''s presenter, State Sen. Charles E. Shannon, argued that the use of credit scores discriminates against minorities and those with low income, but PCI (created in January through a merger of the National Association of Independent Insurers and the Alliance of American Insurers) expressed fears that a ban on the use of credit scores could make an already unattractive market even less appealing to carriers thinking of entering the state's auto and homeowners markets.

Currently Massachusetts' Department of Insurance sets standard auto rates by which all carriers must abide. Because of the lack of competition in the market, many carriers are unwilling to underwrite auto coverage in the state, alleges PCI.

"[Massachusetts] heavily regulates its auto rates so there is no competition," asserts Roger Morris, vice president state media relations, PCI. "Because of this environment currently only 19 companies underwrite auto insurance in the state. An outright ban won't help the market. It will make it more unattractive to those currently writing business in the state and very unattractive to businesses thinking about underwriting insurance in the state."

The use of credit scores for underwriting purposes is currently permitted for homeowners insurers in the state of Massachusetts. Morris explains that most Massachusetts homeowners insurance underwriters have adopted the practice in past year or so. However, due to the regulation of the state's auto insurance market, credit scores are currently not figured into the auto insurance equation. Although a ban on a practice that isn't currently taking place doesn't seem to have that great of an impact on the Massachusetts auto market, PCI's Morris contends that it could in the future.

"There are some initiatives underway with the [Massachusetts] Department of Insurance to make changes to the regulation of auto rates so that they are more insurer-friendly," Morris explains. If such changes are made, a ban on credit scoring could affect the future auto insurance market.

Although most states have debated the issue of using credit scores for insurance rating and underwriting purposes, none have banned the practice entirely. According to PCI, current Massachusetts law permits credit bureaus and other agencies that compile credit information to make such information available to other for use "in connection with the underwriting of insurance involving the consumer." According to the organization, this statement shows that the Massachusetts General Court has already made the policy judgment that the use of credit information is appropriate in the sales process. PCI argues that no evidence has been presented that warrants reversing judgment.

During yesterday's hearing consumer groups testified in favor of the ban because they charged that it discriminates, relates Morris. Additionally, various agent and industry associations, including PCI, testified against a ban on the use of credit scores. "The hearing was very well conducted," Morris says. "There were no indications as to which direction the [Joint] Committee on Insurance is headed. [PCI] is hoping that this bill will go no farther than this [hearing]." The organization's member companies write 24.2 percent of auto insurance in Massachusetts and 48.7 percent of the homeowners insurance in that state.