Oregon Regulator: Credit Scoring, Other Issues Better Handled by States

When it comes to solving insurance issues, state insurance departments are better consumer protectors than the federal government, according to Oregon’s Insurance Administrator Joel Ario. While the federal government plays a role in protecting consumers, states are better equipped to handle problems because they are closer to the consumers affected by the issues.

Furthermore, national programs are often built “on successful state experiments,” Ario said in an exclusive video interview with Insurance Journal’s Andrew Simpson. “It’s in the nature of the 50 states to experiment in different kinds of ways. We’re the laboratories of democracy,” Ario said.

One issue Oregon has been wrestling with recently that could have national implications is the issue of credit scoring. Rather than ban the use of credit scores across the board, Oregon imposed laws that thus far have worked for residents and businesses. The law allows credit scores to be used for new business — but not for existing customers.

While the system has worked, Oregon has a voter initiative on the Nov. 7, 2006 General Election Ballot. If Measure 42 passes, it would prohibit insurance companies from using credit scores or “credit worthiness” in calculating rates and premiums. That is creating some controversy between consumers and insurers.

Other states will be watching the outcome of the election because if it passes, it would affect both personal and commercial lines, according to Nicole Mahrt, a representative with the American Insurance Association in Sacramento. Furthermore, if Measure 42 passes, it could be replicated in other areas of the country, she said.

“There clearly are still trouble spots with credit scoring,” Ario admitted. “Take something like Katrina, where suddenly people are thrown out of their homes and have a number of other economic dislocations. Is it fair to punish them with credit scoring that’s going to affect their insurance rates on a go-forward basis?”

Nevertheless, in those cases, a state would best know when its residents need better consumer protections, Ario indicated.
“Insurance is one of those messy sort of products that involve a lot of consumer protection activity that’s best done at the state level,” he said. “A federal consumer protection call center is not nearly as good as state by state protections.”

For those reasons, Ario believes a federal charter is “a very bad idea.”

To learn more about Ario’s views and Oregon’s approach to the use of credit scores, health care, and broker compensation and disclosure, visit www.insurancejournal.com/broadcasts/. The video interview with Ario is one in a series of 15 interviews with state regulators titled, “The Commissioners.” All 15 interviews are now available for viewing in the video feature section on the Insurance Journal Web site.