NAIC Credit-Scoring Inquiry Looks Into Insurance-Scoring Firms

Two National Association of Insurance Commissioners standing committees evaluating credit-based insurance scoring turned their sights to the firms that provide insurance-scoring services to insurance companies, exploring whether they should be regulated.

The Property and Casualty Insurance Committee and the Market Regulation and Consumer Affairs Committee, meeting at the NAIC's fall national meeting, heard testimony from insurers, officials from insurance-scoring organizations and consumer representatives. The idea is to determine whether these organizations should be considered advisory organizations, and therefore possibly subject to state oversight.

"The objective is to collect information on which we can base recommendations to policymakers, both at the state and the national level," said Illinois Insurance Director Michael McRaith, chairman of the property and casualty committee.

As classified by the NAIC's Property and Casualty Model Rating Law, an "advisory organization" refers to entities that "assist insurers in ratemaking-related activites." Lamont Boyd, director of product management, insurance-scoring solutions, for FICO -- formerly known as the Fair Isaac Corporation -- said that definition does not apply to his company. While FICO is a resource for insurers, it does not "compile insurance statistics, prepare insurance policies, bond forms or underwriting rules," he said.

Property/casualty insurance representatives questioned the purpose and need of the committees' exploration into this topic. Alex Hageli, director of personal lines for the Property Casualty Insurers Association of America, said it was "a regulatory burden in search of a problem."

"When an organization is licensed as an advisory organization, that brings a lot of regulatory overhead to that organization. When you look at the definition that exists in most places for advisory organizations, FICO and other entities don't seem to meet those definitions," said David Snyder, vice president and associate general counsel for the American Insurance Association.

McRaith said the topic is a natural outgrowth of the joint committees' ongoing investigation into credit-based insurance scoring.

"If the insurance-scoring companies were subject to oversight as advisory organizations, we could go into their shop, we could review their practices from top to bottom, we could develop solid, fact-based understanding of how do they participate in the insurance rating process and what's the impact on consumers," he said.

The two committees will meet via conference call in approximately four weeks, McRaith said.