Summary
It is the carrier that has the responsibility to decide whether to use credit scoring, or insurance scoring, in its rating process, and it is the carrier that must satisfy state insurance department regulations regarding insurance scoring. However, the agent represents the company and must inform the insured that insurance scoring is being used by the company and how it affects his or her premiums. Consumer activists who are critics of insurance scoring say that it results in discrimination against minority groups and that it is just another excuse for insurers to raise rates. However, according to a white paper from the Insurance Information Institute, a report on credit-based insurance scores by the Federal Trade Commission found that auto insurers' use of insurance credit scores leads to more accurate underwriting because there is a correlation between insurance scores and the likelihood of filing an insurance claim.
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Extract
Credit Scoring Debate Continues
Credit scoring, or insurance scoring as some in the insurance industry prefer to call it, for the purpose of rating auto and homeowners insurance has been a controversial subject for quite some time. Back in the 1970s, a few property and casualty insurers tried to use credit scores, which were designed solely for lending institutions for lending purposes, as an underwriting criterion for auto and homeowners insurance.
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