Newspaper article THE JOURNAL RECORD

Board Ponders Allowing Companies to Use Credit Reports to Set Rates

Newspaper article THE JOURNAL RECORD

Board Ponders Allowing Companies to Use Credit Reports to Set Rates

Article excerpt

Insurance companies use credit reports when deciding who to sell insurance to, but should they be permitted to use the reports when deciding how much to charge?

Deanna Kamp, rate analyst for the State Board for Property and Casualty Rates, told members of that body Thursday that several companies have filed requests to use credit scores in their rate- making process.

For years, she said, companies have used credit reports in their underwriting departments, but the board's jurisdiction generally doesn't extend to underwriting. So far, only personal auto insurance would be affected.

She told board members that companies proposing to use credit reports to set rates have proposed a variety ways to use the reports. But Ron Coble with Farmers Insurance Group pointed to other areas where each company has different policies. For example, rating territories vary from company to company, he said.

Coble said Farmers has proposed using credit reports in order to apply discounts.

"In our program, no one will be denied because of their credit score," he said.

Kamp noted that there is a correlation between credit risk and risk for insurance loss, although no one has been able to completely explain why. But Coble said the reason is fairly easy to understand.

"Responsible people pay their bills and responsible people don't have accidents," he said.

Kamp said that while that may be the case, companies could place consumers in higher tiers. She also noted that a person's credit may be marred by issues over which they have no control, such as the death of a bread-winning spouse or major medical bills.

Still, using credit scores for rating purposes may ultimately benefit consumers by opening up insurance markets, Coble said. He noted some insurance companies are working toward a system where anyone who applies for insurance is approved but their rates would vary based on risk. …

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