Consumers are shedding debt and spending more responsibly during the current economic downturn, resulting in higher credit scores for many Americans, all the more reason to continue using credit scores as a basis for insurance underwriting standards.

According to Dr. Robert Hartwig, president of the Insurance Information Institute (III), 43 percent of consumers nationwide increased their credit score earlier this year, while 27 percent saw a decrease and 30 percent remained unchanged.

Hartwig’s remarks came as part of his formal testimony during the National Association of Insurance Commissioner’s (NAIC) all-day public hearing on the impact of credit-based insurance scores on consumers. An insurance score is a numerical ranking based on an individual’s credit history. Actuarial studies show that how a person manages his or her financial affairs is a good predictor of the number and size of insurance claims they may file.

The NAIC’s hearing comes at a time when numerous state legislatures are considering laws which would either restrict or ban outright an insurer’s use of credit-based insurance scores when rating potential auto and homeowners insurance policyholders, or determining the premium they should charge for these products, the III said.

"Prohibiting insurers from using credit-based insurance scores would instantaneously result in inherently unfair outcomes: higher rates for people with lower risk, and lower rates for those with a higher likelihood of submitting claims. In other words, bans or severe restrictions on insurer use of credit-based insurance scores would lead to massive subsidies for people who impose greater costs on the system," Hartwig said.