Credit Scoring was discussed at our recent Board meeting in Las Vegas and there were differing opinions on the use of credit scoring. New York does not support the National position.

National Auto Agents Alliance (NAAA), a non-profit trade association representing insurance agents in 21 states, is unopposed to the lawful and reasonable use of credit information as a tool for evaluating risk. We believe in "use without abuse." We have huge concerns about current practices.

State regulators and consumer groups urge consumers to "shop" for insurance. Consumers must have the ability to "shop." While many major insurers have utilized similar underwriting rules and rates prior to the use of Credit Scoring, the use of Credit Scoring severely restricts or totally eliminates the consumer’s ability to "shop."

When credit reporting agencies such as Fair Isaac, "tag" a consumer with a numerical "score" used by insurers representing 80% of the industry, to accept, decline or price auto insurance, regardless of prior driving records, loss and insurance history, and in many cases excellent payment history, the consumer’s ability to "shop" is severely impaired. Interstate commerce is restricted. The big winner is Fair Isaac who receives fees of approximately $6.00 for 80% of every insurance application written throughout the nation, generating multi-millions of dollars of profits.

NAAA agrees that a consumer’s past history of bankruptcy, late payments and bad credit may be a valid indicator of financial irresponsibility and may have effect on an insurance risk, but there are many valid exceptions such as extraordinary medical bills, family emergencies, involuntary loss of employment due to the September 11t^h tragedy or current recession, struggling single parents, etc.

We take strong exception to the use of the number of open credit accounts, applications or inquiries as a part of "scores." Without access to a consumer’s income and ability to repay credit, or the fact that the consumers has open credit accounts with excellent payment history, adverse "scores" should not be created. For insurers to dictate the number of open credit accounts a consumer may have to purchase or maintain low cost insurance is inflammatory, intrusive and a restriction of interstate commerce. Additionally, consumers with "no hit" credit history are not necessarily bad drivers but are eliminated from the lowest rates.

A major concern with Agents is that "credit scoring" is creating a negative image for the insurance industry. Agents deal with consumers daily on a "face to face" basis and can’t hide in an ivory tower like top management of insurers who make these decisions. Insurers are notoriously self-destructive in dealing with consumer issues.

Many credit reports contain erroneous information. It is burdensome for the average consumer to correct credit records. Several major corporations earn millions of dollars performing "credit repair" services for a fee, indicating the large volume of erroneous information in credit reports.

The 1945 federal McCarran-Ferguson act granted the individual states broad authority to "regulate" The Business of Insurance. Such authority includes rate making and underwriting practices of insurers. Federal laws do not allow or suggest that insurers bypass state regulation.

In summary, NAAA members attempt to put our industry’s best foot forward, regardless of the obstacles imposed on us by insurers. We urge insurers to use credit information in a responsible manner in order to head off poor public relations and restrictive legislation, which arises from abusive consumer practices.