Credit Scoring Continues to Draw Congressional Scrutiny

The use of credit scores in the insurance business is receiving increased attention in Congress. Last month, the House Financial Services Oversight and Investigation (O&I) Subcommittee held a hearing titled “The Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance.” The hearing was in follow-up to a similar hearing held in October 2007.

The issue first came under scrutiny during consideration of the Fair and Accurate Credit Transaction (FACT) Act of 2003. That legislation included a requirement that the Federal Trade Commission (FTC) complete a study of the effects of using credit-based insurance scores on the availability and affordability of financial products and services. Last year, the FTC completed its first such study. The study showed that credit scores could be an effective and accurate indicator of risk but also found that they could serve as a small proxy for race in auto insurance lines.

Since the FTC study was released, there have been two bills introduced to limit or ban the use of credit scores in insurance. Rep. Luis Gutierrez (D-Ill.) introduced H.R. 5633, the Non-Discriminatory Use of Consumer Reports and Consumer Information Act of 2008, which would prohibit the use of credit scoring for any lines of insurance if the FTC determined that the credit score was a proxy for race. More recently, Rep. Maxine Waters (D-Calif.)introduced H.R. 6062, the Personal Lines of Insurance Fairness Act of2008, which would remove insurance lines from the Fair Credit Reporting Act (FCRA), thereby prohibiting any consumer reports or score from being used in personal insurance lines. House Financial Services Chairman Barney Frank (D-Mass.) and O&I Chairman Mel Watt (D-N.C.) are both cosponsors of these bills, demonstrating the issue’s considerable traction.

Representatives from the FTC, the NAIC and NCOIL testified during the May hearing. FTC Director Lydia Parnes spent much of her time attempting to clarify what the results of the FTC study actually demonstrated—there has been considerable confusion about whether the FTC actually said that credit scores were a proxy for race or whether they merely said it had the same proxy as many other factors and that it was negligible. Unfortunately, Parnes did little to clear up the question.

Florida Commissioner Kevin McCarty testified on behalf of the NAIC and spent much of his testimony criticizing the use of credit scores in insurance. However, he also stated that the NAIC’s official position is that they support further federal study of the issue. Representative George Keiser from North Dakota testified on behalf of NCOIL and offered a vigorous defense of the benefits of credit scoring in insurance and spoke about the benefits of the NCOIL model act on the issue.

The hearing’s second panel was composed of representatives from consumer groups and industry associations. Charles Neeson from Westfield Insurance testified representing the Property Casualty Insurers (PCI) and spoke at length about the benefits to consumers that credit scores for insurance has provided.

Chairman Watt concluded the hearing by noting that further study was necessary on the issue, and the Big “I” is expecting another hearing on the issue as soon as July 2008. Additionally, the FTC is now beginning a new study on the use of credit scores in homeowners’ insurance. Whether through continued hearings, FTC studies or legislation such as H.R. 5633 and H.R. 6062, the issue of credit scores in insurance is likely to continue to be a hot issue in Washington, D.C.

John Prible (john.prible@iiaba.net) is Big “I” assistant vice president of federal government affairs.


USDA Begins Implementing 2008 Farm Bill

After nearly a year of Congressional consideration, a procedural snafu, a Presidential veto and a Congressional veto override, the 2008 Farm Bill is finally been complete and the U.S. Department of Agriculture is now implementing it. The 2008 Farm Bill provides for the continuation of agricultural programs through fiscal year 2012.

For the past year, the Big “I” has lobbied to ensure that the 2008 Farm Bill protects and enhances to integrity of the federal crop insurance program, which is a vital risk management tool for millions of America’s farmers.

Among the chief crop insurance reforms sought by the Big “I” in the 2008 Farm Bill was a repeal of the legislation authorizing Premium Reduction Plans (PRP) and a tightening of anti-rebating language. Both provisions were included in the final Farm Bill.

The Big “I” has been fighting against PRP and unfair rebating, and the discriminatory practices they encourage, for a number of years. Congress’ decision to include language repealing PRP and tightening anti-rebating statutes is a significant and welcome development for independent insurance agents and farmers alike. The USDA is now beginning to implement the Farm Bill, and the Big “I” expects regulations on the PRP and anti-rebating provisions to be published as early as this July. The Big “I” welcomes this implementation and looks forward to working with the USDA and these new important policy provisions.

—J.P.