Credit-Scoring Ban May Force Insurers to Rethink Their Underwriting Processes

04/15/2010

Keeping up with their credit can help consumers obtain the most favorable insurance premiums - for now.

However, some lawmakers are currently taking efforts to ban such credit scoring practices, according to a recent report by the Casualty Actuarial Society. This may force insurers to develop new underwriting techniques, based on factors like the number of years individuals have been insured, their payment history and the number of claims filed.

Such actions are not new, according to Pinnacle Actuarial Resources, Inc., principal Roosevelt Mosley, who alluded to a 2002 ban on credit scoring for Maryland homeowners insurers.

"The ban resulted in some rate inequities from a cost perspective and a little bit of a shake-up in market share and industry loss ratios," he said. "However, the end result was that the market did not collapse. We did the best we could with the market that was there."

Credit history may indicate a consumer's responsibility level, risk-taking tendencies and financial stability. Recent economic conditions have made it increasingly difficult for individuals to remain current on credit, mortgage and other payments, forcing some institutions that use credit-scoring to adjust their practices.

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