Credit scoring saves money for a majority of Minnesotans and is fair, Bob Johnson, executive vice president, of the Insurance Federation of Minnesota (IFM) testified Feb. 5 to a legislative panel considering a ban on insurers use of credit scoring.
House File 2492, a proposal that bans insurers use of credit scores in underwriting, would cause a high percentage of Minnesotans to pay more for their homeowners and auto insurance, according to testimony given by Johnson at a hearing held by the Minnesota House Committee on Commerce, Jobs and Economic Development.
According to IFM President and CEO Al Parsons, there is rock-solid scientific and empirical evidence that credit scores are an accurate, effective tool to underwrite insurance risk. Parsons added that since most people have good credit, this practice saves most people money, noting banning this tool would increase premiums for most people in order to subsidize premiums for those with bad credit scores who are more likely to have claims.
The IFM estimates that more than a million-and-a-half Minnesota policyholders currently enjoy lower insurance rates because credit scoring allows insurers to more accurately assess risk.
One IFM member company ranked their policyholders into five groups based on credit score. The lowest fifth of their policyholders ranked by credit score filed 100 percent more claims than the top fifth of their policyholders.
Another insurer broke their policyholders into 18 equal categories. Their results found the lowest category filed 250 percent more claims than the top category.
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