Automobile insurance industry to examine use of credit scores

The National Association of Insurance Commissioners announced recently that it plans to review the industry's use of credit-based scoring.

The debate over the practice was fueled this month when Michigan's insurance commissioner rejected proposed rate increases from car insurance companies that use credit scores in offering discounts to drivers.

Companies that do use credit scores defend the practice by saying that the scores can be an indicator of which drivers are less likely to file claims.

However, in a recent statement, Michigan commissioner Ken Ross cited a recent hearing where an insurance agent acknowledged that a customer with good credit had been able to get a discount despite having a DUI on their record, while a customer with a good driving record but a lower credit score ended up with a higher rate.

Meanwhile, the NAIC indicated that it plans to hold a hearing this summer that will focus on how car insurance companies use credit-based insurance scores for pricing and underwriting, and what the impact on that practice is on consumers given the current economy.

The group also noted that 48 states have already placed various limits on credit-based insurance scores.

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