AIA Says N.D. Credit Ban Bill Harmful for Consumers

In a letter to members of the North Dakota Senate Industry, Business and Labor Committee, the American Insurance Association (AIA) urged legislators to oppose a bill that would abolish the state’s balanced law regulating credit-based insurance scoring, saying the practice benefits a majority of consumers. Text of the letter is below.

“This Tuesday (Jan. 27), during a meeting of the Senate Industry, Business and Labor Committee, you will likely have to vote on SB 2330, legislation that would essentially preclude insurers from using credit information to help rate and underwrite personal insurance policies. A substantial majority of your constituents benefit from the use of this modern practice and for that reason we urge a 'no' vote on SB 2330.

"Enacted in 2003, the present North Dakota law is based on the National Conference of Insurance Legislators' (NCOIL) model that is either legislation or regulation in at least 25 other states. The existing law is a balanced, common-sense approach to regulating the use of credit information that both protects consumers and allows insurers the reasonable use of this valuable tool. It should be retained. Numerous studies have found that a majority of consumers benefit from the use of credit-based insurance scores. Using credit information as part of the rating or underwriting process helps insurers more accurately assess, and price, for an individual’s risk, thereby reducing subsidization of bad risks by good ones, making the system fairer for everyone.

"Most recently, the Federal Trade Commission’s 2007 study found that when scoring is used, 59 percent of people see premium decreases. A 2008 Arkansas Department of Insurance (ARDOI) study reported that '91 percent of consumers either received a discount for credit or it had no effect on their premium,' and 'for those policies in which credit played some role in determining the final premium, those receiving a decrease outnumbered those who received an increase by 3.44 to 1.' ARDOI studies in the previous three years delivered similar results. North Dakota is an NCOIL state like Arkansas.

"Additionally, a Wisconsin domestic company testified in the fall of 2007 on a similar bill before its state Senate Insurance Committee that nearly 75 percent of their customers benefited from a premium discount because of the use of credit information. In addition to the studies which have proven consumers with better insurance scores generally file fewer claims and have lower insurance losses, credit information is completely objective and “blind” to legally prohibited factors such as race, religion, marital status and nationality.

"In addition to the various state and federal consumer protection laws, insurance regulators are charged with ensuring that consumers are not charged rates that are 'excessive, inadequate, or unfairly discriminatory.' Insurers are subject to strict legal standards for all risk classification variables, including credit, and the state of North Dakota has a strong regulatory system that has worked well for consumers and insurers.

"There is no need for any drastic action, as presented in SB 2330, that would unfairly penalize less risky consumers. I hope upon an examination of this information, and that contained in the following attachment, you will agree to retain the law as it is presently written.”

AIA member companies write more than 27 percent of the North Dakota property/casualty market. The property/casualty industry in North Dakota paid more than $30 million in premium taxes alone in 2007 and is a major source of capital for governmental bodies in the state.

According to analysis of A.M. Best data, they held $727.4 million in North Dakota municipal bonds in 2007 – approximately 21 percent of the outstanding state and local government debt in the state.