NCOIL Revised Credit-Scoring Model to Provide Relief for Catastrophic Events

The National Conference of Insurance Legislators wants insurance companies to cut a break to policyholders who find themselves jobless, sick, divorced or deployed overseas in the military. The organization approved an amendment to its landmark model law on credit-based insurance scoring that would require insurers using the practice to allow leeway for customers' "extraordinary life circumstances."

As defined by the revised NCOIL model, approved by the Property-Casualty Committee and the Executive Committee, such circumstances could include, but are not limited to: serious illness or injury; death of a spouse, child or parent; divorce; identity theft; loss of employment for three months or more; military service overseas; and a federal or state-government declared catastrophic event. Policyholders would have to demonstrate that their circumstances affected their credit score.

The votes came at the conclusion of NCOIL's summer meeting.

Property/casualty insurers supported the amendment as a fair compromise between insurer and consumer interests, with Deirdre Manna of the Property Casualty Insurers Association of America saying that by adapting to today's conditions, the action allows NCOIL to remain the leader in legislating the use of credit-based insurance scoring. Joe Thesing, director of state affairs for the National Association of Mutual Insurance Companies, said it sends a message "that consumers are being well looked after."

Representing the American Academy of Actuaries, Jeffrey L. Kucera said there is no quantifiable data that scores have decreased during the ongoing recession. In fact, he said, there are suggestions that many have improved. Insurance industry representatives made the same point at an April 30 National Association of Insurance Commissioners hearing on credit-based insurance scoring, saying concerned consumers are paying off debt at a higher rate (BestWire, May 1, 2009).

"The rest of the population ... will necessarily have their rates raised to compensate," Kucera said.

But committee members said the amendment was fair. Insurance rates and premiums consider a number of trade-offs and considerations now, and this is just another one, Committee Chairman and Tennessee Rep. Charles Curtiss, D-Sparta said.

The NCOIL model is effective in approximately half of U.S. states. Several other states, like Illinois, have similar legislative language, said State Sen. Bill Brady, R-Bloomington.

At its summer meeting in June, the NAIC did not address credit-based insurance scoring at its summer meeting in June (BestWire, June 16, 2009). A joint meeting of the Property and Casualty Insurance and Market Regulation and Consumer Affairs committees never reached an agenda item to respond to and come up with the next steps to address the often-controversial topic.