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SUPPLEMENTAL MATERIALS

OF

AMERICAN INSURANCE ASSOCIATION

ON

CREDIT-BASED INSURANCE SCORING

NAIC APRIL 30, 2009 HEARING

MAY 15, 2009

David F. Snyder Vice President & Associate General Counsel

Public Policy American Insurance Association

2101 L Street, NW Suite 400 Washington, DC 20037

[email protected]

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DEFINING KEY TERMS THAT CAME UP REPEATEDLY IN THE HEARING During the April 30, 2009, NAIC hearing on credit-based insurance scoring (CBIS), discussion turned from the present economic climate to social propriety of CBIS. “Discrimination,” “proxy,” “disparate impact,” “proxy effect,” “unfair discrimination,” and “disproportionate impact” – there are many concepts that arise in this context. While they may on the surface seem like subtle differences, it is crucial for all those involved in discussing the policy and legal issues to have a common vocabulary on this important aspect of the issue. We caution that no statement included herein may be taken out of context. This is a summary, not exhaustive treatment, of the subject, which we reserve the right to supplement at any time. Discrimination / Intentional (“Overt”) Discrimination Definition A definition for the commonly understood meaning of discrimination is found at dictionary.com: “treatment or consideration of, or making a distinction in favor of or against, a person or thing based on the group, class, or category to which that person or thing belongs rather than on individual merit.” Discussion Because intentional (“overt”) discrimination occurs when a person is treated a particular way based on a prohibited factor and because insurers do not use race, a prohibited factor, in underwriting and rating, intentional (‘overt”) discrimination is not relevant to the CBIS discussion. Proxy Definition A “proxy” is typically understood as one factor substituting for another. In the context of this discussion, the relevant questions would be does credit or CBIS stand in the place of a prohibited factor like race or is one able to determine a person’s race by seeing her insurance score? The FTC framed this by providing that whether CBIS is a proxy for race, ethnicity or income hinges on whether the scores are predictive within those groups. Here is the FTC’s conclusion on the issue: “In short, because scores do predict risk within racial, ethnic, and income groups, they do not act solely as a proxy for those characteristics.” “Proxy” has been part of the landscape of this discussion since the term was used in Section 215 of the Fair and Accurate Credit Transactions Act of 2003 (FACTA),1 requiring a study of the effects of credit scores and credit-based insurance scores on availability and affordability of financial products. Discussion The FTC found that the “relationship between scores and claims risk remains strong when controls for race, ethnicity, and neighborhood income are included in the statistical models of risk.” Disproportionate Impact / Statistical Difference / Differential Effect Definition 1 Section 215 is included as an Exhibit to these comments. Specifically, (a)(3) provides in part for a study of “the extent to which, if any, the use of credit scoring models, credit scores, and credit-based insurance impact on the availability and affordability of credit and insurance to the extent information is currently available or is available through proxies, by geography, income, ethnicity, race, color, religion, national origin, age, sex, marital status, and creed, including the extent to which the consideration or lack of consideration of certain factors by credit scoring systems could result in negative or differential treatment of protected classes under the Equal Credit Opportunity Act…” (Emphasis added.)

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“Disproportionate impact” refers to the pure statistical impact differences. Some may also refer to this as “disparate impact,” but a full disparate impact analysis goes further and it may simplify the discussion to refer to the statistical-only difference as “disproportionate impact.” The Federal Reserve study refers to this concept as “differential effect.”2 Discussion This is not a legal or actuarial concept. Indeed, it governs the sale of no product or service in our economy. Proxy Effect Definition The term “proxy effect” differs from “proxy.” It is not in FACTA nor is it commonly used in statistical, legal, or actuarial fields. However, it does appear in the FTC’s auto study. It seems to mean that even if there is no “proxy” – because a factor is risk related – there may be a “proxy effect” if there are score differences that cannot be explained by a factor other than race. This concept was not discussed in the parallel Federal Reserve study. Discussion In order to model correctly, the FTC needed some way of capturing the geographic risk. The insurers that provided the data for the FTC Study each used different territorial schemes. So the territory used for rating the policies would not work. While all the insurers could provide zip code, zip codes would be almost impossible for the FTC to use as is because there are too many to model. FTC needed to use one single scheme across all states to capture the geographic risk. In other words the FTC needed a means to group the zip codes into a reasonable number of groups with similar loss propensities. The solution required the insurers to report additional property damage data and that property damage data would be used to group the zip codes. This solution assumed that all the coverages behaved geographically very similar to property damage. It appears that assumption was incorrect. Unfortunately, the FTC attempted to measure a “proxy effect” with more precision than its database would allow. Such a precise measurement would require the ability to precisely control the study for all non-racial factors such as age, gender, marital status, tenure, mileage, and geographical location of the insured. The FTC’s controls for these factors were less than ideal, and as such the FTC cannot say with any degree of certainty that it did in fact find even a small proxy effect. For the property damage liability coverage where the FTC had the best controls for geographic risk, the FTC found no proxy effect. If the FTC had been able to control for geographic risk as accurately for all coverages as it did for the property damage liability coverage, all hints of a proxy effect would likely have disappeared. Unfair Discrimination Definition The definition of “unfairly discriminatory” is tied to accurately measuring risk, meaning that rates must be cost-based and treat policyholders with equal risks equally. The standard of not being “unfairly discriminatory” is the very foundation for insurance regulation. It consumes the field in areas where a 2 See page 54 of the Federal Reserve Board August 2007 Report to the Congress on Credit Scoring and Its effects on the Availability and Affordability of Credit.

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State legislature does not otherwise deem a particular factor to be “unfairly discriminatory” via a public policy mandate. Discussion Every study of CBIS has found a correlation between credit-based insurance score and risk. Each of these studies has substantiated that there is actuarial justification. State insurance laws, and indeed the principles underpinning property and casualty insurance pricing, rely on actuarial science to determine rates that most accurately measure loss potential. Actuarial science accomplishes this task by finding relationships between factors and risk of loss and then allocating costs accordingly. This is the essence of risk-based pricing. Importantly, to disregard the predictive value of a factor (1) ignores actuarial support; (2) results in better risks subsidizing worse risks; and (3) moves closer to a one-size-fits-all approach in direct conflict with risk classification standards. Pricing programs of most insurers depend on making distinctions based upon a number of different factors. All things being equal, the one who reflects a worse risk based on this difference will pay more. To explain, the process of risk classification involves segmenting groups of individuals expected to have similar costs. The use of more segments makes for a more granular approach in which actuaries can more finely hone their review of an individual in order to more accurately create class plans and measure risk potential. When there are a greater number of risk levels and pricing variations, insureds are placed with others with a more similar risk profile, which results in a more accurate, and therefore by definition fairer price. Also, using this granular methodology, insurers are better able to offer coverage to people they might have otherwise declined. Disparate Impact Analysis Definition The legal theory of disparate impact is applied on a case-by-case basis. It allows a plaintiff with no evidence of intentional discrimination to sue under certain civil rights laws3 by alleging that a business practice, such as an employment policy, disproportionately disadvantages the members of a protected group. But because business practices that produce disparate effects occur all the time in the workplace and throughout society in the complete absence of any unlawful discrimination, Congress and the courts have taken care to carve out an important and express exception to liability – the “business necessity” rule, which recognizes that even when a policy results in a disparate / disproportionate impact, that policy is permissible if it is reasonably related to a legitimate business objective and the plaintiff cannot prove that an equally effective alternative exists to achieve that objective. The business necessity rule ensures that businesses are not unfairly punished for adopting a policy that serves a legitimate business purpose, but may happen to result in a disproportionate impact. Discussion There is disagreement over whether the disparate impact legal theory would be applicable to cases involving certain personal lines coverages. Regardless, even assuming the theory can be applied and that a valid and statistically relevant disproportionate impact is found, legitimate business needs are served by CBIS and no ready and equally accurate alternative is available.

3 Disparate impact theory was originally developed in the context of employment discrimination claims brought under Title VII of the Civil Rights Act of 1964. See Griggs v. Duke Power Co., 401 U.S. 424 (1971). The “business necessity” rule was codified by Congress twenty years later in the Civil Rights Act of 1991, 42 U.S.C. Sec, 2000e-2(k)(1)(A). The rule is also applicable for claims arising under the Fair Housing Act.

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A comprehensive actuarial analysis of 2.7 million auto insurance policies across the United States conclusively demonstrated that credit-based insurance scores are linked to the propensity for loss. The massive multivariate study showed that insurance-based credit scores consistently ranked among the top two or three most important risk factors for all components of auto insurance coverage: bodily injury liability, personal injury protection, medical payments, property damage liability, collision and comprehensive.4 Improving the accuracy of risk assessment and pricing plainly qualifies as a legitimate business objective. Consideration of a consumer’s credit history allows insurers to estimate a consumer’s risk of loss with greater accuracy, with in turn allows the underwriter to set premiums at a level that more appropriately reflects that risk. Credit scoring is reasonably necessary to achieve an important business objective and is therefore consistent with business necessity. Broadening the availability of insurance coverage is an additional, and unquestionably legitimate, business purpose served by CBIS. The use of CBIS increases competition by allowing a low-cost but effective underwriting or rating tool. The FTC has agreed with this conclusion in its own study: “After trying a variety of approaches, the FTC was not able to develop an alternative credit-based insurance scoring model that would continue to predict risk effectively, yet decrease the differences in scores on average among racial and ethnic groups.”5

4 See EPIC Actuaries 2003 study. 5 FTC July 2007 Report, page 4.

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EXHIBIT 1

FAIR AND ACCURATE CREDIT TRANSACTIONS ACT OF 2003

SEC. 215. STUDY OF EFFECTS OF CREDIT SCORES AND CREDIT-BASED INSURANCE SCORES ON AVAILABILITY AND AFFORDABILITY OF FINANCIAL PRODUCTS.

(a) STUDY REQUIRED.—The Commission and the Board, in consultation with the Office of Fair Housing and Equal Opportunity of the Department of Housing and Urban Development, shall conduct a study of—

(1) the effects of the use of credit scores and credit-based insurance scores on the

availability and affordability of financial products and services, including credit cards, mortgages, auto loans and property and casualty insurance;

(2) the statistical relationship, utilizing multivariate analysis that controls for prohibited factors under the Equal Credit Opportunity Act and other known factors, between credit scores and credit-based insurance scores and the quantifiable risks and the actual losses experienced by businesses;

(3) the extent to which, if any, the use of credit scoring models, credit scores, and credit-based insurance impact on the availability and affordability of credit and insurance to the extent information is currently available or is available through proxies, by geography, income, ethnicity, race, color, religion, national origin, age, sex, marital status, and creed, including the extent to which the consideration or lack of consideration of certain factors by credit scoring systems could result in negative or differential treatment of protected classes under the Equal Credit Opportunity Act, and the extent to which, if any, the use of underwriting systems relying on these models could achieve comparable results through the use of factors with less negative impact; and

(4) the extent to which credit scoring systems are used by businesses, the factors considered by such systems, and the effects of variables which are not considered by such systems.

(b) PUBIC PARTICIPATION.—The Commission shall seek public input about the prescribed

methodology and research design of the study described in subsection (a), including from relevant Federal regulators, State insurance regulators, community, civil rights, consumer, and housing groups.

(c) REPORT REQUIRED.--

(1) IN GENERAL.—Before the end of the 24-month period beginning on the date of

enactment of this Act, the Commission shall submit a detailed report on the study conducted pursuant to subsection (a) to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate.

(2) CONTENTS OF REPORT.—The report submitted under paragraph (1) shall include the findings and conclusions of the Commission, recommendations to address specific areas of concerns addressed in the study, and recommendations for legislative or administrative action that the Commission may determine to be necessary to ensure that credit and credit-based insurance scores are used appropriately and fairly to avoid negative effects.

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i

1130 Connecticut Ave. NW

Suite 1000

Washington, DC 20036

202-828-7100

Fax 202-293-1219

www.aiadc.org October 24, 2008 Commissioner John Morrison, Chair National Association of Insurance Commissioners Market Regulation and Consumer Affairs (D) Committee 2301 McGee Street Suite 800 Kansas City, Missouri 64108-2662 Re: “Review of the Use of Credit-Based Insurance Scoring By Insurers” - AIA Review of August 26, 2008 Draft Dear Commissioner Morrison: The American Insurance Association (AIA) appreciates the opportunity to comment on the National Association of Insurance Commissioner’s August 26 draft report “Review of the Use of Credit-Based Insurance Scoring By Insurers.” Although relatively thorough in the number of reports analyzed, in tone and in content the report often takes a one-sided approach to credit-based insurance scoring (CBIS). An NAIC report on CBIS should take care to offer a balanced and unbiased approach, even when presenting a comprehensive consumer perspective. This would include describing the various viewpoints – consumers, insurers, academics, regulators - in the ongoing debate. Moving forward, any NAIC report should be accurate, objective, grounded in the law, recognize progress in the debate and be void of faulty presumptions.

Real consumers, policyholders and voters had the opportunity to comment directly on credit-based insurance scoring in Oregon via their vote and turned down a proposed ban by a margin of 2-1 (2006 election). For a consumer perspective, the report should dig deeper than critiques made by some special interest consumer advocacy groups. Most of the consumer viewpoints and footnotes in the report are attributed to one source (from the Center for Economic Justice). That is a disservice to the NAIC, its staff, the consumers they aim to serve and the insurers that they regulate (those same insurers that ultimately fund NAIC activities). The NAIC should consider other resources, such as complaint numbers from their own departments, insurers who operate each day on product, price and service using CBIS, vendors who create CBIS, agencies that supply data to create CBIS and the countless others in this arena. The NAIC and individual state insurance departments have access to more complete and objective information sources, such as the number and nature of consumer policyholder complaints received about CBIS, trends over time, the ratio of complaints to numbers of auto and homeowners policies, and comparisons to complaints and inquiries received on other matters. The NAIC report on CBIS should include an inventory and analysis of data on CBIS-related policyholder complaints.

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ii

In the states in which AIA has recently testified on CBIS legislative proposals, the commissioners have provided the number of CBIS related consumer complaints, and they are in the few dozen annually, an impressive performance considering the millions of personal lines transactions in those states. This lack of real complaints is especially significant because under federal law a specific notice is sent to each consumer that has experienced an adverse action as a result of the use of CBIS. The NAIC report also gives scant attention to one salient fact: the auto and homeowners markets (outside of catastrophe prone areas) are functioning quite well with generally stable prices and good availability. A major reason for this is wide use of CBIS, which allows more accurate pricing, reducing premiums for many, if not most, policyholders. In addition, availability, as demonstrated by historically low residual market populations, has improved because insurers now can insure virtually all risks because they can, with CBIS, reliably price them.

Importantly, to be credible the overarching review which comprises the first half of the report must achieve greater balance by a broader analysis of consumer attitudes, insurance department data and consumer feedback, insurer viewpoints and testimony on the efficacy of credit scoring, and studies conducted by academics. Specific concerns with and suggestions for the report follow, with the draft language on the left and AIA’s comments presented on the right:

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iii

I. In

trod

uctio

n

…

This

pap

er w

ill: p

rovi

de a

bac

kgro

und

on h

ow in

sure

rs u

se c

redi

t-bas

ed

insu

ranc

e sc

ores

; de

tail

conc

erns

ove

r th

e us

e of

the

se s

core

s; a

nd

prov

ide

a su

mm

ary

of w

hat

stud

ies

conc

erni

ng c

redi

t-bas

ed in

sura

nce

scor

es h

ave

disc

over

ed.

It is

hop

eful

tha

t th

is r

epor

t w

ill b

e us

eful

to

stat

e re

gula

tors

as

they

dec

ide

wha

t re

gula

tory

fra

mew

ork

shou

ld b

e im

plem

ente

d w

ith re

spec

t to

cred

it-ba

sed

insu

ranc

e sc

ores

.

The

vast

maj

ority

of

stat

es h

ave

acte

d on

thi

s is

sue.

In

deed

, m

ost

legi

slat

ures

ha

ve

enac

ted

law

s an

d re

gula

tors

ha

ve

issu

ed

regu

latio

ns in

man

y st

ates

. M

ost s

tate

s ha

ve a

lread

y “d

ecid

e[d]

wha

t re

gula

tory

fra

mew

ork

shou

ld b

e im

plem

ente

d w

ith r

espe

ct t

o” C

BIS

an

d ar

e qu

ite c

apab

le o

f us

ing

exis

ting

tool

s to

det

erm

ine

wha

t ad

ditio

nal a

ctio

n is

nee

ded,

if a

ny.

Ther

efor

e, w

e se

e lit

tle v

alue

for

this

rep

ort,

exce

pt a

s ba

ckgr

ound

inf

orm

atio

n an

d ex

cept

to

the

exte

nt it

is a

n ac

cura

te a

nd u

nbia

sed

sum

mar

y of

prio

r stu

dies

. II.

Bac

kgro

und

on U

se o

f CB

IS b

y In

sura

nce

Com

pani

es

W

hat C

redi

t-Bas

ed In

sura

nce

Scor

es A

re

In t

he p

ast

twen

ty y

ears

, on

e of

the

mos

t im

porta

nt d

evel

opm

ents

to

auto

mob

ile a

nd h

omeo

wne

r in

sura

nce

unde

rwrit

ing

and

ratin

g ha

s be

en

the

incr

ease

d us

e of

cre

dit-b

ased

ins

uran

ce s

core

s. D

urin

g th

is t

ime,

m

any

cons

umer

gr

oups

an

d re

gula

tors

ha

ve

ques

tione

d th

e pr

edic

tabi

lity

of th

ese

scor

es a

s w

ell a

s th

eir p

ossi

ble

disp

ropo

rtion

ate

or

disp

arat

e im

pact

on

min

ority

or l

ow-in

com

e po

pula

tions

. …

If th

is s

ectio

n is

inte

nded

to

be ju

st t

he f

acts

, th

e qu

estio

ns a

nd t

he

deba

tes

from

lat

er s

ectio

ns n

eed

not

be i

ncor

pora

ted

here

. T

he

seco

nd s

ente

nce

of th

e fir

st p

arag

raph

is g

ratu

itous

.

Emer

genc

e of

CB

IS in

Und

erw

ritin

g an

d R

atin

g M

echa

nism

s …

S

ome

insu

ranc

e co

mpa

nies

are

not

allo

wed

by

stat

e la

w t

o us

e cr

edit-

base

d in

sura

nce

scor

es f

or e

xist

ing

cust

omer

s. S

ome

insu

rers

als

o ch

oose

not

to u

se c

redi

t-bas

ed in

sura

nce

scor

es in

ren

ewal

s. H

owev

er,

all i

nsur

ance

com

pani

es th

at u

se c

redi

t-bas

ed in

sura

nce

scor

es d

o so

in

mak

ing

deci

sion

s co

ncer

ning

pot

entia

l cus

tom

ers.

A

ccor

ding

to

the

Nat

iona

l Ass

ocia

tion

of M

utua

l Ins

uran

ce C

ompa

nies

(N

AM

IC),

48 s

tate

s ha

ve t

aken

som

e le

gisl

ativ

e or

reg

ulat

ory

actio

n co

ncer

ning

the

use

of c

onsu

mer

cre

dit i

nfor

mat

ion

for

unde

rwrit

ing

and

ratin

g pu

rpos

es. N

AM

IC id

entif

ied

42 s

tate

s th

at h

ave

proh

ibite

d ce

rtain

us

es o

f cre

dit h

isto

ry in

form

atio

n or

ban

ned

the

use

of c

erta

in n

egat

ive

cred

it fa

ctor

s in

the

form

ulat

ion

of in

sura

nce

scor

es. …

This

par

agra

ph m

akes

it

soun

d lik

e th

e pr

ohib

ition

s ar

e on

cer

tain

in

sura

nce

com

pani

es. W

hat d

oes

this

mea

n? T

his

is n

ot th

e ca

se.

M

any

stat

es h

ave

take

n ba

lanc

ed a

ppro

ache

s to

add

ress

ing

CB

IS,

indi

catin

g w

hen

they

can

be

used

and

whe

n th

ey m

ay n

ot b

e th

e ba

sis,

or s

ole

basi

s of

act

ions

, suc

h as

non

rene

wal

. Th

is c

itatio

n to

the

NA

MIC

sum

mar

y se

ems

to p

ut it

s fin

ding

s in

the

nega

tive.

Th

is is

cre

ativ

e.

The

fact

is t

hat

less

tha

n a

hand

-full

of

stat

es d

isal

low

CB

IS, a

lthou

gh s

ome

prov

ide

limita

tions

on

how

it is

to

be u

sed.

U

se o

f C

BIS

is

also

sub

ject

to

fede

ral

law

and

sta

te

insu

ranc

e la

ws

of g

ener

al a

pplic

abili

ty,

such

as

thos

e go

vern

ing

ratin

g, u

nder

writ

ing

and

disc

rimin

atio

n.

III. B

enef

its to

Insu

rers

in U

sing

Cre

dit-B

ased

Insu

ranc

e Sc

ores

A

s yo

u w

ill s

ee, t

he b

enef

its a

re n

ot o

nly

to in

sure

rs.

They

are

als

o be

nefic

ial

to

man

y co

nsum

ers

and

to

the

over

all

mar

ket.

Th

e re

fere

nce

to in

sure

rs s

houl

d be

rem

oved

fro

m t

he s

ectio

n tit

le a

s it

give

s th

e im

pres

sion

tha

t in

sure

rs a

re i

n on

e ca

mp

and

that

all

cons

umer

s ar

e in

ano

ther

.

Page 10

iv

The

mai

n re

ason

s in

sure

rs u

se c

redi

t-bas

ed in

sura

nce

scor

es in

clud

e:

mor

e re

fined

ris

k cl

assi

ficat

ions

; cu

stom

er v

alua

tion

to d

rive

targ

et

mar

ketin

g; p

ricin

g an

d un

derw

ritin

g pr

ofic

ienc

y; a

nd in

crea

sed

rete

ntio

n of

cus

tom

ers.

In

sure

rs a

rgue

tha

t th

e us

e of

cre

dit

base

d in

sura

nce

scor

es i

s ne

cess

ary

to p

rope

rly e

valu

ate

risk

and

char

ge i

ndiv

idua

l po

licyh

olde

rs ra

tes

that

mos

t clo

sely

alig

n w

ith th

eir t

rue

risk.

The

y go

on

to s

ay t

hat

not

usin

g cr

edit-

base

d in

sura

nce

scor

es c

ould

res

ult

in

subs

idie

s fro

m lo

wer

-ris

k in

divi

dual

s to

hig

her-

risk

indi

vidu

als.

Ple

ase

expa

nd th

is s

ectio

n. O

mitt

ed fr

om th

e be

nefit

s se

ctio

n is

dat

a re

latin

g to

the

com

petit

iven

ess

of t

he p

erso

nal l

ines

mar

ket,

exce

pt

perh

aps

for h

omeo

wne

rs in

sura

nce

in s

ome

cata

stro

phe

pron

e ar

eas.

A

uto

insu

ranc

e, fo

r ex

ampl

e, is

ava

ilabl

e ev

eryw

here

at p

rices

whi

ch

are

stab

le o

r lo

wer

in r

ecen

t ye

ars.

A

nd,

mos

t te

lling

, au

to r

esid

ual

mar

kets

are

at

hist

oric

low

s, a

nd i

n so

me

stat

es h

ave

virtu

ally

di

sapp

eare

d be

caus

e of

the

avai

labi

lity

and

affo

rdab

ility

of i

nsur

ance

, ba

sed

on ri

sk a

sses

smen

t mad

e po

ssib

le th

roug

h C

BIS

.

Insu

rers

use

cre

dit-b

ased

insu

ranc

e sc

ores

prim

arily

in u

nder

writ

ing

and

ratin

g of

con

sum

ers.

Und

erw

ritin

g is

the

pro

cess

by

whi

ch t

he i

nsur

er

dete

rmin

es w

heth

er a

con

sum

er is

elig

ible

for c

over

age

and

ratin

g is

the

proc

ess

that

det

erm

ines

how

muc

h pr

emiu

m to

cha

rge

a co

nsum

er. T

he

cred

it-ba

sed

insu

ranc

e sc

ore

mod

els

used

by

insu

rers

are

des

igne

d to

pr

edic

t th

e ris

k of

loss

. In

sure

rs u

se c

redi

t-bas

ed in

sura

nce

scor

es f

or

unde

rwrit

ing

to a

ssig

n co

nsum

ers

to a

poo

l bas

ed o

n ris

k an

d th

en f

or

ratin

g by

dec

idin

g ho

w to

adj

ust t

he p

rem

ium

up

or d

own.

…

Ple

ase

expa

nd th

is s

ectio

n. A

dditi

onal

ben

efits

incl

ude:

•

CB

IS p

rovi

de c

onsu

mer

s m

ore

accu

rate

, and

for

a m

ajor

ity o

f pe

ople

– u

pwar

ds o

f 75

% a

s so

me

insu

rers

hav

e te

stifi

ed –

m

ore

favo

rabl

e, p

ricin

g te

rms.

•

CB

IS fa

ll no

t onl

y un

der s

tand

ard

insu

ranc

e ra

ting

law

and

an

ti-di

scrim

inat

ion

law

s, b

ut a

lso

addi

tiona

l sta

te a

nd fe

dera

l pr

otec

tions

via

law

s su

ch a

s th

e N

CO

IL M

odel

Act

on

Cre

dit

and

the

fede

ral F

CR

A.

• C

BIS

rem

ove

subj

ectiv

ity fr

om s

ome

of th

e in

sura

nce

proc

ess

and

rate

eac

h in

divi

dual

app

lican

t so

that

the

pric

e m

ore

clos

ely

mat

ches

the

risk.

M

any

expe

rts b

elie

ve t

hat

cred

it-ba

sed

insu

ranc

e sc

orin

g ha

s co

me

to

be o

ne o

f th

e m

ost

impo

rtant

fac

tors

ins

urer

s us

ed i

n de

term

inin

g a

cons

umer

’s a

utom

obile

or h

omeo

wne

rs in

sura

nce

prem

ium

.

Ple

ase

expa

nd th

is s

ectio

n. A

lso:

•

CB

IS a

re o

ne o

f man

y fa

ctor

s in

sure

rs u

se, n

ot a

sol

e fa

ctor

an

d th

eref

ore

a po

or c

redi

t rat

ing

alon

e do

es n

ot o

ften

have

a

grea

t im

pact

on

a fin

al p

rem

ium

, if i

t fac

tors

in a

t all

(per

the

AR

stu

dy s

how

ing

60%

of c

onsu

mer

s pr

emiu

ms

wer

e un

affe

cted

by

CB

IS).

• C

BIS

are

the

mos

t obj

ectiv

e an

d ac

cura

te ra

ting

varia

bles

(as

com

pare

d to

DM

V re

ports

; sel

f-rep

ortin

g by

insu

reds

of m

iles

driv

en; h

idde

n tra

ffic

viol

atio

ns p

er “p

roba

tion”

and

forg

iven

ess

law

s; e

tc.).

IV

. Con

sum

er C

once

rns

over

Cre

dit-B

ased

Insu

ranc

e Sc

ores

Th

e tit

le s

houl

d re

mov

e re

fere

nce

to c

onsu

mer

s.

Als

o, t

he s

ectio

n m

ore

broa

dly

addr

esse

s co

ncer

ns f

rom

var

ious

sou

rces

. T

here

are

m

any

cons

umer

s th

at b

enef

it fro

m C

BIS

. To

set

the

pape

r up

as

an

insu

rer

vers

us c

onsu

mer

issu

e ov

er s

impl

ifies

and

mis

char

acte

rizes

th

e is

sue.

A

s th

e us

e of

cre

dit-b

ased

ins

uran

ce s

corin

g ha

s in

crea

sed

amon

g in

sure

rs,

it is

no

t su

rpris

ing

that

co

nsum

ers

and

regu

lato

rs

have

Th

ere

have

bee

n co

nsum

ers

and

regu

lato

rs o

n bo

th s

ides

of

the

issu

e.

This

mak

es it

sou

nd li

ke th

ey a

re a

ll so

lidly

in th

e “c

once

rns”

Page 11

v

expr

esse

d nu

mer

ous

conc

erns

ove

r its

use

and

pos

sibl

e ef

fect

s.

cam

p. T

he q

ualif

ier “

som

e” s

houl

d be

add

ed.

Th

e m

ost

basi

c co

ncer

n ha

s be

en

that

m

ost

cons

umer

s do

no

t un

ders

tand

the

conc

ept o

f cre

dit-b

ased

insu

ranc

e sc

orin

g or

how

or w

hy

it w

orks

. M

ost

cons

umer

s ar

e no

t ev

en

awar

e th

at

thei

r cr

edit

char

acte

ristic

s ar

e be

ing

used

to c

reat

e a

scor

e th

at w

ill th

en a

ffect

thei

r pu

rcha

se o

f an

insu

ranc

e po

licy.

Eve

n if

they

hav

e th

e kn

owle

dge

of th

e ex

iste

nce

of

cred

it-ba

sed

insu

ranc

e sc

ores

, it

is

not

intu

itive

fo

r co

nsum

ers

to u

nder

stan

d ho

w c

redi

t-bas

ed i

nsur

ance

sco

res

wor

k or

w

hy th

ey w

ork.

Ther

e ha

ve b

een

man

y ed

ucat

iona

l effo

rts.

Ple

ase

get i

n to

uch

with

A

IA if

you

wou

ld li

ke to

lear

n m

ore.

Th

is c

omm

ent

is o

utda

ted.

M

any

stat

e no

tice

requ

irem

ents

hav

e ch

ange

d ov

er

the

past

5

year

s.

Toda

y,

mos

t st

ates

re

quire

a

disc

losu

re t

hat

cred

it in

form

atio

n w

ill b

e us

ed.

Add

ition

ally

, th

e fe

dera

l and

sta

te la

ws

requ

ire a

n ad

vers

e ac

tion

notic

e be

sen

t. M

ost

stat

es (

and

the

NC

OIL

Mod

el)

requ

ire d

iscl

osur

e of

the

top

4 it

ems

whi

ch n

egat

ivel

y im

pact

ed a

con

sum

er’s

CB

IS.

C

onsu

mer

s in

tuiti

vely

can

und

erst

and

why

the

y m

ay h

ave

high

er r

ates

du

e to

prio

r dr

ivin

g hi

stor

y or

the

loca

tion

of th

eir h

ome,

but

it m

akes

no

sens

e to

mos

t con

sum

ers

why

thei

r ra

tes

wou

ld b

e hi

gher

bec

ause

of a

sc

ore

who

se f

orm

ula

is u

nkno

wn.

In

addi

tion,

whi

le c

onsu

mer

s ca

n ch

ange

man

y of

the

ir ot

her

beha

vior

s in

ord

er t

o af

fect

a r

ate,

it is

not

re

adily

kno

wn

how

to im

prov

e a

cred

it-ba

sed

insu

ranc

e sc

ore.

The

stat

emen

t ab

out

chan

ging

be

havi

ors

is

inac

cura

te

for

two

reas

ons.

Fi

rst,

a cr

edit-

base

d in

sura

nce

scor

e is

eas

ier

to c

hang

e th

an m

any

othe

r au

to r

atin

g va

riabl

es s

uch

as a

ge,

gend

er,

mar

ital

stat

us,

and

geog

raph

y.

S

econ

d,

insu

rers

, ag

ent

advi

ce

and

broc

hure

s, i

nsur

ance

dep

artm

ents

, ne

wsp

aper

s, m

agaz

ines

, ba

nks,

in

sura

nce

and

finan

cial

tra

de a

ssoc

iatio

ns a

nd o

ther

sou

rces

hav

e pr

ovid

ed s

ubst

antia

l edu

catio

nal i

nfor

mat

ion

over

the

past

dec

ade

on

the

impo

rtanc

e of

cre

dit

scor

es a

nd C

BIS

, an

d ho

w t

o im

prov

e sc

ores

.

AIA

agr

ees

that

mor

e ca

n st

ill b

e do

ne to

edu

cate

con

sum

ers.

Fur

ther

an

d co

ntin

uing

ed

ucat

ion

is

impo

rtant

an

d th

e N

AIC

, in

divi

dual

in

sura

nce

depa

rtmen

ts,

insu

rers

and

con

sum

er a

dvoc

ates

can

all

play

a c

ritic

al ro

le. H

owev

er, C

BIS

and

cre

dit s

core

s ar

e dy

nam

ic a

nd

cons

umer

s ha

ve th

e ab

ility

and

gen

eral

ly m

ore

pow

er to

cha

nge

this

ra

ting

fact

or in

a fa

vora

ble

way

than

with

oth

ers.

A

dditi

onal

ly,

sinc

e th

e re

auth

oriz

atio

n of

th

e FC

RA

(F

AC

T A

ct)

cons

umer

s ar

e en

title

d to

one

free

cre

dit r

epor

t a y

ear

from

eac

h of

th

e th

ree

maj

or c

redi

t rep

ortin

g ag

enci

es, a

nd t

hat

coup

led

with

any

ad

vers

e ac

tion

notic

e th

at a

llow

s fo

r a

free

repo

rt, h

as e

xten

ded

cons

umer

s’ k

now

ledg

e of

the

cred

it re

port,

the

fact

ors

that

mak

e up

a

cred

it-ba

sed

scor

e an

d “h

ow to

impr

ove”

it e

xpon

entia

lly.

As

of y

et, n

o re

sear

ch, q

uant

itativ

e or

oth

erw

ise,

has

bee

n pr

oduc

ed th

at

show

s w

hy th

ere

is a

cor

rela

tion

betw

een

cred

it-ba

sed

insu

ranc

e sc

ores

an

d in

sura

nce

loss

es.

Thou

gh t

here

are

sev

eral

stu

dies

cla

imin

g th

e pr

edic

tive

effe

cts

of c

redi

t-bas

ed in

sura

nce

scor

es o

n in

sura

nce

loss

es

This

cla

im in

not

ent

irely

true

in th

at a

com

pila

tion

and

brie

f ana

lysi

s of

pr

evio

us

rese

arch

st

udie

s go

ing

back

se

vera

l de

cade

s by

U

nive

rsity

of T

exas

Pro

fess

ors

Pat

rick

Bro

cket

t and

Lin

da L

. Gol

den

seem

s to

indi

cate

that

cre

dit s

core

s m

ay b

e co

rrel

ated

with

risk

-taki

ng

Page 12

vi

and

num

erou

s in

sura

nce

indu

stry

re

pres

enta

tives

ha

ve

tout

ed

the

effe

cts

of c

redi

t-bas

ed i

nsur

ance

sco

res,

non

e ha

ve a

rticu

late

d w

hy

cred

it-ba

sed

insu

ranc

e sc

ores

are

rela

ted

to in

sura

nce

clai

ms.

prop

ensi

ty,

indi

vidu

al

driv

er

beha

vior

, an

d in

sura

nce

clai

min

g be

havi

ors

and

patte

rns.

The

NA

IC re

port

late

r men

tions

and

revi

ews

the

Bro

cket

t an

d G

olde

n st

udy,

thu

s th

e dr

aft

repo

rt is

int

erna

lly

inco

nsis

tent

.

Mor

e im

porta

ntly

and

ger

man

e to

the

ques

tion

of h

ow a

nd w

hy C

BIS

w

orks

, the

re is

no

lega

l req

uire

men

t or

actu

aria

l prin

cipa

l tha

t sta

tes

that

rat

ing

fact

ors

dem

onst

ratin

g a

stro

ng c

orre

latio

n an

d th

at a

re

risk-

base

d m

ust

be e

xpla

ined

in

term

s of

cau

satio

n.

A b

asic

un

derp

inni

ng o

f th

e N

AIC

and

sta

te r

egul

ator

rev

iew

of

any

ratin

g fa

ctor

mus

t be

anch

ored

in a

trad

ition

al le

gal a

nd a

ctua

rial f

ram

ewor

k.

Act

uaria

l Sta

ndar

d of

Pra

ctic

e N

o. 1

2 ad

dres

ses

“Ris

k C

lass

ifica

tion.

” Th

e re

latio

nshi

p be

twee

n th

e ris

k ch

arac

teris

tics

and

the

expe

cted

ou

tcom

es (

corr

elat

ion)

sho

uld

be c

onsi

dere

d.

How

ever

, “it

is

not

nece

ssar

y fo

r the

act

uary

to e

stab

lish

a ca

use

and

effe

ct re

latio

nshi

p be

twee

n th

e ris

k ch

arac

teris

tic a

nd e

xpec

ted

outc

ome

in o

rder

to u

se

a sp

ecifi

c ris

k ch

arac

teris

tic.”

(See

AS

OP

No.

12,

Sec

. 3.2

.2.)

Oth

er r

atin

g va

riabl

es i

llust

ratin

g a

stro

ng r

isk-

base

d ut

ility

suc

h as

ge

nder

, age

, and

mar

ital s

tatu

s ar

e m

ore

easi

ly u

nder

stoo

d in

pub

lic

and

regu

lato

r pe

rcep

tions

as

rela

ting

to b

ehav

ior,

expe

rienc

e an

d m

atur

ity t

hat

impa

cts

insu

ranc

e ris

k. H

owev

er,

dem

onst

ratin

g ex

act

caus

atio

n m

ight

not

be

any

easi

er to

pre

cise

ly q

uant

ify th

an is

cre

dit

scor

ing.

M

entio

n of

the

need

to fi

nd p

reci

se c

ausa

tion

for

why

CB

IS

are

so c

lose

ly re

late

d to

insu

ranc

e ris

k is

a re

d he

rrin

g.

This

lack

of a

n ex

plan

atio

n is

trou

blin

g to

con

sum

ers

as th

ey s

trugg

le to

un

ders

tand

why

the

ir ra

tes

may

be

affe

cted

by

pers

onal

, fin

anci

al

char

acte

ristic

s se

emin

gly

havi

ng n

othi

ng t

o do

with

ris

k or

ins

uran

ce.

Bec

ause

the

actu

al c

redi

t-bas

ed in

sura

nce

scor

e m

odel

s ar

e pr

oprie

tary

to

indi

vidu

al in

sure

rs, i

t is

diffi

cult

to k

now

pre

cise

ly w

hat w

eigh

t is

give

n to

cre

dit-b

ased

ins

uran

ce s

core

s du

ring

the

unde

rwrit

ing

and

ratin

g pr

oces

s.

Man

y st

ates

hav

e th

e au

thor

ity to

rev

iew

mod

els

and

are

spec

ifica

lly

gran

ted

that

rig

ht u

nder

the

NC

OIL

mod

el l

aw.

Reg

ulat

ors

shou

ld

have

the

exp

ertis

e to

rev

iew

the

m f

or c

ompl

ianc

e w

ith la

w a

nd t

he

abili

ty t

o m

aint

ain

them

con

fiden

tial

for

legi

timat

e tra

de s

ecre

t an

d co

mpe

titiv

e re

ason

s.

Rat

e fil

ings

util

izin

g C

BIS

hav

e be

en s

ubm

itted

and

app

rove

d fo

r m

ore

than

a d

ecad

e to

the

ver

y sa

me

regu

lato

rs t

hat

com

pris

e th

e N

AIC

. C

lear

ly e

ach

and

ever

y on

e of

thos

e m

illio

ns o

f rat

e ap

prov

als

by re

gula

tors

and

thei

r sta

ff re

flect

not

onl

y a

real

risk

pre

dict

ion

valu

e an

d a

lack

of d

iscr

imin

atio

n, b

ut a

an

inhe

rent

a b

enef

it to

con

sum

ers.

In

sure

rs s

ay c

redi

t-bas

ed i

nsur

ance

sco

res

allo

w t

hem

to

impr

ove

the

spee

d an

d co

nsis

tenc

y of

und

erw

ritin

g as

wel

l as

bei

ng a

ble

to o

ffer

This

par

agra

ph i

s sl

ante

d.

Inst

ead

of r

ecou

ntin

g th

e m

uch

larg

er

perc

enta

ges

of p

eopl

e th

at re

ceiv

e di

scou

nts

or a

re u

naffe

cted

due

to

Page 13

vi

i

polic

ies

to m

ore

cons

umer

s.

This

, too

, see

ms

coun

ter-

intu

itive

to s

ome

cons

umer

s as

the

y le

arn

they

may

not

be

offe

red

insu

ranc

e or

may

re

ceiv

e a

high

er ra

te d

ue to

som

e un

know

n cr

edit

char

acte

ristic

s.

CB

IS,

the

pape

r ch

oose

s to

em

phas

ize

the

few

who

pay

mor

e.

In

addi

tion,

fed

eral

and

sta

te l

aws

requ

ire r

easo

ns t

o be

giv

en f

or

adve

rse

actio

ns, s

o th

e re

fere

nce

to “

unkn

own

cred

it ch

arac

teris

tics”

is

fact

ually

wro

ng.

M

any

criti

cs b

elie

ve th

at c

redi

t-bas

ed in

sura

nce

scor

es m

ay a

ctua

lly b

e do

uble

cou

ntin

g ot

her

risk

fact

ors,

mea

ning

that

the

scor

e is

not

dire

ctly

a

pred

icto

r of

loss

rat

ios,

but

inst

ead

the

scor

e is

cor

rela

ted

with

oth

er

data

suc

h as

age

and

loca

tion

that

are

alre

ady

inco

rpor

ated

in in

sure

rs’

unde

rwrit

ing

and

pric

ing

mod

els.

In

addi

tion,

cre

dit-b

ased

ins

uran

ce

scor

es m

ay n

ot b

e m

easu

ring

how

resp

onsi

ble

or c

aref

ul a

per

son

is, b

ut

inst

ead

may

be

a pr

oxy

for

iden

tifyi

ng in

divi

dual

s w

ho a

re u

nem

ploy

ed,

sing

le, d

ivor

ced

or d

isab

led.

This

sta

tem

ent

shou

ld b

e re

vise

d.

It m

isre

pres

ents

the

cur

rent

de

bate

. I

n th

is s

ectio

n an

d in

sev

eral

oth

er p

lace

s, t

he d

raft

is

mis

lead

ing

and

inac

cura

te w

hen

it im

plie

s th

at m

any

belie

ve c

redi

t sc

orin

g is

a s

urro

gate

for o

ther

ratin

g or

dem

ogra

phic

fact

ors.

It g

ives

sh

ort s

hrift

to fi

ndin

gs w

hich

indi

cate

oth

erw

ise.

Th

e as

serti

on o

f “m

any

criti

cs”

here

is

vagu

e, m

ost

likel

y ou

tdat

ed

and

prob

ably

can

not b

e su

ppor

ted,

and

like

ly r

efer

s to

the

sam

e fe

w

criti

cs.

Four

key

stu

dies

fro

m d

iver

se s

ourc

es (

insu

ranc

e ac

tuar

ies,

st

ate

insu

ranc

e de

partm

ent,

fede

ral g

over

nmen

t) in

clud

ing

the

1999

M

onag

han

stud

y, E

PIC

act

uaria

l stu

dy o

f 200

3, th

e Te

xas

Insu

ranc

e D

epar

tmen

t st

udie

s of

200

3-20

05, a

nd th

e FT

C r

epor

t of 2

007

have

st

rong

ly i

llust

rate

d an

d co

nclu

ded

that

CB

IS d

oes

not

mat

eria

lly

doub

le c

ount

oth

er r

isk

fact

ors,

and

tha

t it

cont

ribut

es a

n ad

ditio

nal

accu

racy

, ef

ficac

y,

fairn

ess,

an

d ris

k-re

late

dnes

s to

th

e ra

ting

proc

ess.

Thi

s is

bor

ne o

ut b

y th

e ot

her m

ultiv

aria

te s

tudi

es, i

nclu

ding

E

PIC

Act

uarie

s.

In a

dditi

on to

con

sum

er a

nd r

egul

ator

con

cern

s, in

sura

nce

agen

ts h

ave

expr

esse

d fru

stra

tions

with

the

use

of

cred

it-ba

sed

insu

ranc

e sc

ores

. P

rodu

cers

ofte

n ca

nnot

eve

n pr

ovid

e a

prem

ium

quo

te t

o a

pote

ntia

l cu

stom

er b

ecau

se o

f ei

ther

the

cus

tom

er’s

low

cre

dit-b

ased

insu

ranc

e sc

ore

or la

ck o

f suf

ficie

nt c

redi

t his

tory

. A p

rodu

cer m

ay a

lso

be re

quire

d to

ask

cus

tom

er’s

for

soci

al s

ecur

ity n

umbe

rs in

ord

er fo

r th

e in

sure

r to

ob

tain

cre

dit i

nfor

mat

ion.

Thi

s ca

n af

fect

the

rela

tions

hip

betw

een

agen

t an

d co

nsum

er

whe

n th

e ag

ent

is

not

able

to

ex

plai

n w

hy

cred

it in

form

atio

n is

bei

ng u

sed

or h

ow e

xact

ly i

t w

ill a

ffect

the

con

sum

er’s

po

tent

ial p

urch

ase.

Som

e ag

ents

hav

e al

so e

xpre

ssed

frus

tratio

ns o

ver

the

way

the

use

of c

redi

t-bas

ed in

sura

nce

scor

es h

as s

eem

ed to

pro

hibi

t ag

ents

from

writ

ing

muc

h bu

sine

ss in

a p

artic

ular

geo

grap

hic

area

.

Like

the

“m

any

criti

cs”

who

bel

ieve

CB

IS d

oubl

e co

unts

oth

er r

isk

fact

ors,

th

is

asse

rtion

is

ou

tdat

ed.

Whe

n fir

st

intro

duce

d on

a

wid

espr

ead

scal

e 8-

10 y

ears

ago

man

y ag

ents

did

exp

ress

frus

tratio

n w

ith

CB

IS,

but

as

they

be

cam

e m

ore

fam

iliar

w

ith

proc

edur

es,

prov

idin

g in

form

atio

n to

con

sum

ers,

and

gai

ned

know

ledg

e ab

out t

he

cont

ribut

ion

to a

ccur

acy

in r

atin

g, f

rust

ratio

n an

d op

posi

tion

to C

BIS

ha

s gr

eatly

dim

inis

hed.

Lo

ok t

o re

cent

evi

denc

e.

In a

May

200

8 le

tter

to H

ouse

Fin

anci

al

Ser

vice

s C

omm

ittee

Cha

irman

Wat

t an

d R

anki

ng M

embe

r M

iller

, se

vera

l tra

de a

ssoc

iatio

ns –

inc

ludi

ng t

he I

ndep

ende

nt I

nsur

ance

A

gent

s an

d B

roke

rs o

f Am

eric

a –

stro

ngly

opp

osed

a b

an o

f sco

ring.

Th

ey s

tate

: “C

BIS

are

a r

egul

ated

, effe

ctiv

e, o

bjec

tivel

y ve

rifie

d an

d fa

ir ris

k m

easu

rem

ent

tool

. B

anni

ng o

r pr

ohib

iting

the

ir us

e w

ould

re

stric

t co

nsum

er c

hoic

e an

d el

imin

ate

the

mec

hani

sm b

y w

hich

in

sure

rs p

rovi

de d

isco

unts

to th

e m

ajor

ity o

f con

sum

ers.

”

Page 14

vi

ii

Eve

n ig

norin

g th

e is

sue

of n

ot k

now

ing

for

sure

why

cre

dit-b

ased

in

sura

nce

scor

ing

mig

ht h

elp

mea

sure

risk

, one

of t

he b

asic

fund

amen

tal

ques

tions

tha

t re

gula

tors

and

con

sum

er g

roup

s ar

e co

ncer

ned

with

is

whe

ther

it

is f

air

for

insu

rers

to

char

ge h

ighe

r ra

tes

to p

eopl

e w

hose

fin

anci

al s

ituat

ion

may

hav

e be

en c

ause

d by

a c

atas

troph

ic e

vent

. Usi

ng

cred

it-ba

sed

insu

ranc

e sc

ores

may

jus

t co

ntrib

ute

to c

reat

ing

grea

ter

disp

arity

bet

wee

n so

cioe

cono

mic

gro

ups.

In

divi

dual

s ex

perie

ncin

g un

fortu

nate

eco

nom

ic s

ituat

ions

, of

ten

outs

ide

thei

r ow

n co

ntro

l, ar

e un

fairl

y pe

naliz

ed b

y th

e us

e of

cre

dit-b

ased

in

sura

nce

scor

es.

Thos

e w

ho h

ave

been

affe

cted

by

natu

ral

disa

ster

, te

rror

ism

, ide

ntity

thef

t, or

med

ical

cris

es m

ay s

ee th

eir

curr

ent s

ituat

ion

exac

erba

ted

thro

ugh

no fa

ult o

f the

ir ow

n.

Giv

en t

he r

ecen

t st

ate

of t

he U

.S.

econ

omy

and

finan

cial

diff

icul

ties

faci

ng i

ndiv

idua

l co

nsum

ers,

the

use

of

cred

it-ba

sed

insu

ranc

e sc

ores

m

ay fu

rther

unf

airly

trea

t tho

se w

ho a

re s

trugg

ling

to m

ake

ends

mee

t. A

s th

e ho

usin

g m

arke

t fa

lls r

apid

ly i

n so

me

U.S

. ci

ties

and

mor

tgag

e de

faul

ts r

ise,

neg

ativ

e cr

edit

char

acte

ristic

s w

ill li

kely

incr

ease

for

man

y in

divi

dual

s. A

s co

nsum

ers

face

diff

icul

ties

payi

ng c

urre

nt b

ills

in a

cl

imat

e of

low

job

grow

th a

nd r

isin

g he

alth

car

e co

sts,

som

e in

divi

dual

s m

ay b

e fo

rced

to

mak

e cr

edit-

rela

ted

deci

sion

s th

at a

re n

ot v

iew

ed

favo

rabl

y. If

this

then

lead

s to

a d

eclin

e in

cre

dit-b

ased

insu

ranc

e sc

ores

an

d ris

ing

insu

ranc

e ra

tes,

som

e co

nsum

ers

may

be

head

ed fo

r a n

ever

-en

ding

dec

linin

g sp

iral.

Pol

icym

aker

s m

ay fi

nd th

is to

be

unac

cept

able

in

toda

y’s

econ

omic

env

ironm

ent.

This

por

tion

shou

ld b

e re

mov

ed o

r m

odifi

ed.

It

argu

es a

nd im

plie

s th

at

man

y re

gula

tors

an

d co

nsum

er

grou

ps

stru

ggle

w

ith

CB

IS

beca

use

they

are

con

cern

ed w

heth

er i

t is

fai

r fo

r co

nsum

ers

to

char

ge h

ighe

r ra

tes

to p

eopl

e w

hose

fin

anci

al s

ituat

ion

has

been

ca

used

by

a ca

tast

roph

ic e

vent

. T

his

sect

ion

does

not

mak

e an

y ef

fort

to e

xpla

in o

r ta

ke in

to a

ccou

nt t

he N

CO

IL m

odel

(vi

a dr

aftin

g no

te)

and

othe

r in

divi

dual

sta

te l

aws/

regu

latio

ns,

and

insu

rer

and

indu

stry

pr

actic

es

that

al

low

ad

just

men

ts

for

“ext

raor

dina

ry

life

circ

umst

ance

s.”

The

last

sen

tenc

e of

the

firs

t pa

ragr

aph,

reg

ardi

ng “

soci

oeco

nom

ic

disp

arity

” is

pur

e fic

tion.

N

owhe

re i

s pr

oof

for

this

pro

vide

d an

d in

deed

, be

caus

e ra

tes

are

low

er f

or m

any

insu

reds

and

cov

erag

e m

ore

avai

labl

e, C

BIS

may

hav

e no

impa

ct a

t al

l on

soci

oeco

nom

ic

disp

ariti

es.

In a

ny e

vent

, an

alle

gatio

n of

this

impo

rtanc

e sh

ould

not

si

mpl

y be

re

peat

ed

in

an

NA

IC

docu

men

t, w

ithou

t su

bsta

ntia

l ev

iden

ce.

In

th

e ab

senc

e of

th

at,

such

st

atem

ents

di

sser

ve

regu

lato

rs, t

he p

ublic

and

con

sum

ers.

H

owev

er d

iffic

ult

the

curr

ent

econ

omic

con

ditio

n, t

here

is

no p

roof

th

at it

is r

esul

ting

in in

crea

sed

prob

lem

s fo

r in

sure

ds th

roug

h th

e us

e of

CB

IS.

Leg

isla

tion,

reg

ulat

ion

and

com

pany

pra

ctic

es a

re a

ble

to

resp

ond

to t

hese

circ

umst

ance

s an

d pr

even

t w

ides

prea

d pr

oble

ms.

U

nles

s an

d un

til r

eal c

ompl

aint

s sh

ow a

dra

mat

ic in

crea

se,

ther

e is

no

bas

is in

fact

for t

hese

dire

pre

dict

ions

.

Ther

e is

sim

ply

no e

vide

nce

that

thes

e di

re p

redi

catio

ns a

re in

real

ity

occu

rrin

g.

Inde

ed,

the

evid

ence

is

to t

he c

ontra

ry.

The

NC

OIL

M

odel

, ad

opte

d in

mor

e th

an o

ne h

alf

of t

he S

tate

s, o

ther

sta

te

regu

lato

ry a

ctio

ns a

nd in

sure

r pr

actic

es a

re p

reve

ntin

g th

e ki

nds

of

unfa

ir ou

tcom

es t

hat

are

of c

once

rn in

thi

s pa

ragr

aph.

P

roof

to

the

cont

rary

is

non-

exis

tent

and

the

se a

llega

tions

sho

uld

ther

efor

e be

de

lete

d.

To r

epea

t un

supp

orte

d ac

cusa

tions

, as

thi

s po

rtion

of

the

draf

t del

iber

atel

y m

isle

ads

both

regu

lato

rs a

nd th

e pu

blic

. Th

is r

epor

t fo

cuse

s on

cre

dit-b

ased

ins

uran

ce s

core

s an

d no

t cr

edit

scor

es in

gen

eral

, bu

t it

is w

orth

not

ing

that

a F

redd

ie M

ac C

onsu

mer

C

redi

t su

rvey

fro

m

1999

co

nclu

ded

that

A

frica

n-A

mer

ican

s an

d H

ispa

nics

wer

e si

gnifi

cant

ly m

ore

likel

y to

hav

e ne

gativ

e ite

ms

on th

eir

This

stu

dy i

s irr

elev

ant

to C

BIS

. Th

ere

is n

o pr

oof

of C

BIS

bei

ng

unla

wfu

lly d

iscr

imin

ator

y.

And

it

is t

he o

blig

atio

n of

reg

ulat

ors

to

enfo

rce

the

law

, not

cre

ate

new

sta

ndar

ds to

fit t

he p

ecul

iar

polit

ical

ag

enda

s of

adv

ocac

y gr

oups

. C

BIS

is ra

ce b

lind

and

good

risk

s of

all

Page 15

ix

cred

it hi

stor

y th

an w

hite

s w

ere.

If

certa

in s

ocio

econ

omic

gro

ups

have

w

orse

cre

dit s

core

s in

gen

eral

or w

orse

cre

dit-b

ased

insu

ranc

e sc

ores

in

parti

cula

r, it

seem

s th

at c

harg

ing

high

er r

ates

to

thes

e gr

oups

lead

s to

gr

eate

r so

ciet

al d

ispa

ritie

s in

con

trast

to

wha

t is

des

ired

by s

ocie

ty i

n ge

nera

l.

race

s ar

e be

nefit

ed w

ithou

t dis

tinct

ion,

thro

ugh

the

use

of C

BIS

.

Cre

dit-b

ased

ins

uran

ce s

core

s m

ay a

lso

serv

e as

a p

roxy

for

oth

er

fact

ors

that

are

typi

cally

not

allo

wed

by

stat

e in

sura

nce

regu

lato

rs. I

t was

m

entio

ned

abov

e th

at

corr

elat

ions

be

twee

n cr

edit-

base

d in

sura

nce

scor

es a

nd in

sura

nce

loss

es m

ay a

ctua

lly b

e du

e to

oth

er c

hara

cter

istic

s th

at a

re a

lread

y ac

coun

ted

for

in u

nder

writ

ing

and

ratin

g. It

may

als

o be

th

e ca

se th

at th

e co

rrel

atio

n is

due

to c

hara

cter

istic

s su

ch a

s in

com

e or

ra

ce th

at a

re ty

pica

lly b

arre

d by

sta

tes

from

bei

ng u

sed.

No

legi

timat

e st

udy

has

foun

d an

y di

rect

pro

xy.

This

mus

t be

revi

sed.

R

evie

w t

he F

TC s

tudy

clo

sely

for

diff

eren

ces

betw

een

“pro

xy”

and

“pro

xy e

ffect

”. T

his

is a

n im

porta

nt d

istin

ctio

n.

CB

IS w

ere

foun

d to

be

pred

ictiv

e w

ithin

rac

ial,

ethn

ic a

nd i

ncom

e gr

oups

in th

e FT

C a

nd T

exas

stu

dies

. —It

wou

ld b

e im

poss

ible

for a

n in

sure

r to

gue

ss r

ace

or ta

rget

and

rat

e gr

oups

bas

ed o

n C

BIS

. Th

e N

AIC

rep

ort

shou

ld s

trive

to

repo

rt an

d ac

cura

tely

inte

rpre

t fin

ding

s fro

m

the

Texa

s,

FTC

an

d ot

her

stud

ies,

ra

ther

th

an

mak

e th

e in

fere

nces

con

tain

ed in

this

sec

tion.

If

race

or

inco

me

is p

redi

ctiv

e of

cre

dit-b

ased

ins

uran

ce s

core

s, t

hen

insu

rers

cou

ld u

se t

he le

gally

-allo

wed

cre

dit-b

ased

insu

ranc

e sc

ores

to

avoi

d w

ritin

g po

licie

s to

peo

ple

of a

spe

cifie

d in

com

e le

vel

or r

ace.

If

cred

it-ba

sed

insu

ranc

e sc

ores

are

fou

nd t

o ha

ve a

dis

prop

ortio

nate

or

even

dis

para

te i

mpa

ct o

n lo

w-in

com

e co

nsum

ers

or m

inor

ities

, th

ese

cons

umer

s m

ay b

e un

fairl

y tre

ated

whe

n it

com

es t

o th

e av

aila

bilit

y or

af

ford

abili

ty o

f ins

uran

ce.

Ther

e is

no

evid

ence

tha

t th

e us

e of

CB

IS v

iola

tes

stat

e or

fed

eral

an

ti-di

scrim

inat

ion

law

s.

Des

pite

all

of t

he s

tudi

es,

legi

slat

ive

and

regu

lato

ry a

ctiv

ity a

nd t

he a

vaila

bilit

y of

the

cou

rts,

ther

e ha

s ne

ver

been

a fi

ndin

g of

inte

ntio

nal d

iscr

imin

atio

n. T

he p

aper

use

s th

e te

rm

"dis

prop

ortio

nate

impa

ct"

whi

ch h

as n

o le

gal m

eani

ng o

r sig

nific

ance

. It

shou

ld n

ot, t

here

fore

, be

used

in th

e pa

per.

Whe

re a

pplic

able

, the

ac

cept

ed le

gal s

tand

ard

for d

iscr

imin

atio

n is

"di

spar

ate

impa

ct"

whi

ch

is s

igni

fican

tly d

iffer

ent

than

"di

spro

porti

onat

e im

pact

." C

BIS

, ba

sed

upon

virt

ually

all

of th

e st

udie

s ci

ted

in th

is p

aper

, cle

arly

mee

ts th

at

test

as

a ris

k as

sess

men

t too

l.

It al

so is

not

cle

ar w

hat i

s do

ne w

ith c

onsu

mer

s w

ho e

ither

do

not h

ave

a cr

edit

scor

e or

hav

e a

“thin

” file

. The

re a

re e

stim

ates

that

as

man

y as

50

mill

ion

Am

eric

ans

are

“uns

cora

ble”

usi

ng t

radi

tiona

l cr

edit

info

rmat

ion

beca

use

of “

thin

” fil

es. B

y de

finiti

on, i

nsur

ers

will

hav

e tro

uble

pro

vidi

ng

a cr

edit-

base

d in

sura

nce

scor

e fo

r th

ese

cust

omer

s le

adin

g to

the

qu

estio

n of

how

insu

rers

will

han

dle

unde

rwrit

ing

and

ratin

g. If

the

lack

of

cred

it hi

stor

y ca

uses

thes

e in

divi

dual

s to

not

hav

e an

app

ropr

iate

cre

dit-

base

d in

sura

nce

scor

e, th

is c

ould

be

detri

men

tal t

o a

larg

e pr

opor

tion

of

soci

ety.

Th

ese

indi

vidu

als

mig

ht

be

unfa

irly

treat

ed

for

not

havi

ng

enou

gh c

redi

t his

tory

to d

evel

op a

sco

re.

It is

cle

ar h

ow m

issi

ng a

nd th

in fi

les

are

hand

led.

Th

e re

port

shou

ld

not

impl

y th

at l

arge

num

bers

of

cons

umer

s ar

e be

ing

pena

lized

. S

peci

fical

ly, t

he N

CO

IL M

odel

(ad

opte

d in

larg

e pa

rt by

mos

t sta

tes)

pr

ovid

es t

he in

sure

r w

ith t

hree

opt

ions

for

han

dlin

g no

hits

and

thi

n fil

es: (

1) tr

eat t

he c

onsu

mer

as

othe

rwis

e ap

prov

ed b

y th

e In

sura

nce

Com

mis

sion

er/ S

uper

viso

r/Dire

ctor

, if t

he in

sure

r pre

sent

s in

form

atio

n th

at s

uch

an a

bsen

ce o

r ina

bilit

y re

late

s to

the

risk

for t

he in

sure

r; (2

) tre

at t

he c

onsu

mer

as

if th

e ap

plic

ant

or i

nsur

ed h

ad n

eutra

l cr

edit

info

rmat

ion,

as

defin

ed b

y th

e in

sure

r; or

(3) e

xclu

de th

e us

e of

cre

dit

info

rmat

ion

as a

fact

or a

nd u

se o

nly

othe

r und

erw

ritin

g cr

iteria

. Th

ere

have

be

en

accu

satio

ns

that

cr

edit-

base

d in

sura

nce

scor

es,

Man

y in

sure

rs h

ave

repo

rted

and

test

ified

tha

t C

BIS

giv

es t

hem

the

Page 16

x

inst

ead

of p

redi

ctin

g in

sura

nce

loss

es,

may

act

ually

be

pred

ictin

g th

e pr

ofita

bilit

y of

pot

entia

l cus

tom

ers.

Som

e al

lege

that

insu

rers

mai

nly

use

cred

it-ba

sed

insu

ranc

e sc

ores

to lo

cate

“be

tter”

cus

tom

ers

– th

ose

who

ar

e w

ealth

ier

and

may

te

nd

to

be

mor

e lo

yal

to

one

com

pany

. C

ompa

nies

hav

e at

tem

pted

to r

efin

e pr

edic

tive

mod

elin

g in

gen

eral

and

on

e of

the

reas

ons

for t

his

is to

targ

et th

e rig

ht a

udie

nce

by m

arke

ting

to

“pro

fitab

le ri

sks.

” Th

e in

sura

nce

indu

stry

has

ack

now

ledg

ed t

hat

pred

ictiv

e m

odel

ing

in

gene

ral c

an p

lay

a us

eful

par

t “in

incr

easi

ng h

it an

d re

tent

ion

ratio

s.”

11

Insu

rers

are

abl

e to

mar

ket a

ds to

“pro

fitab

le ri

sks.

” Ins

urer

s ar

e fo

cusi

ng

reso

urce

s on

not

onl

y cr

eatin

g m

odel

s to

mea

sure

ris

k of

acc

iden

ts,

driv

er b

ehav

ior,

clim

ate

chan

ge a

nd o

ther

ris

ks,

but

also

to

mod

el t

he

chan

ce th

at a

con

sum

er w

ill b

e a

loya

l cus

tom

er o

r pu

rcha

se a

dditi

onal

fin

anci

al p

rodu

cts

such

as

life

insu

ranc

e or

ret

irem

ent p

rodu

cts.

In 2

005

whi

le s

peak

ing

to i

nves

tmen

t an

alys

ts,

the

CE

O o

f A

llsta

te,

Ed

Lidd

y,

stat

ed th

is c

once

pt w

ith re

spec

t to

tiere

d pr

icin

g:

Tier

ed p

ricin

g he

lps

us a

ttrac

t hi

gher

life

time

valu

e cu

stom

ers

who

buy

mor

e pr

oduc

ts a

nd s

tay

with

us

for

a lo

nger

per

iod

of

time.

Th

e fo

cus

on id

entif

ying

con

sum

ers

base

d on

thei

r fut

ure

prof

itabi

lity

due

to l

oyal

ty o

r ab

ility

to

buy

addi

tiona

l fin

anci

al p

rodu

cts

rath

er t

han

the

focu

s on

ris

k an

d lo

ss

prev

entio

n is

tro

ublin

g to

m

any

cons

umer

ad

voca

tes.

abili

ty t

o re

ach

out

to a

muc

h w

ider

, ev

en a

ful

l ran

ge o

f cu

stom

ers

that

may

not

hav

e be

en o

ffere

d or

writ

ten

for

hom

eow

ner

auto

in

sure

rs i

n th

e pa

st d

ue t

o un

certa

intie

s on

ris

k.

This

is

beca

use

CB

IS a

llow

s fo

r m

ore

accu

rate

ris

k as

sess

men

t an

d pr

icin

g, a

nd

cons

umer

s in

all

area

s ha

ve b

een

bene

ficia

ries.

Som

e in

sure

rs h

ave

repo

rted

that

due

to

CB

IS,

up t

o 80

-90%

of

appl

ican

ts f

all

into

un

derw

ritin

g gu

idel

ines

and

can

be

offe

red

insu

ranc

e, c

ompa

red

to

less

than

50%

prio

r to

the

adve

nt o

f CB

IS.

Th

e FT

C s

tudy

men

tions

sev

eral

ins

urer

s by

nam

e th

at s

peci

fical

ly

cite

d th

at

CB

IS

“ena

bled

th

em

to

offe

r po

licie

s to

hi

gher

-ris

k co

nsum

ers

than

they

had

pre

viou

sly.

” (S

ee p

ages

46-

47.)

Coi

ncid

ing

with

the

rise

of C

BIS

is a

maj

or a

nd o

ngoi

ng d

eclin

e in

the

num

ber

of r

isks

writ

ten

thro

ugh

resi

dual

mar

kets

, pa

rticu

larly

urb

an

auto

insu

ranc

e m

arke

t. A

lthou

gh p

rope

rty re

sidu

al m

arke

ts h

ave

been

im

pact

ed b

y ca

tast

roph

e ris

k, i

n ge

nera

l nu

mbe

rs o

f ho

meo

wne

rs

insu

ranc

e ris

ks

writ

ten

in

urba

n re

sidu

al

prop

erty

m

arke

ts

have

de

clin

ed p

reci

pito

usly

as

wel

l for

non

cat

astro

phe

pron

e st

ates

.

The

FTC

stu

dy r

efer

ence

s a

mar

ked

drop

in

the

num

ber

of s

tate

re

sidu

al m

arke

t pol

icie

s fro

m th

e m

id-1

990s

to 2

000,

just

a C

BIS

was

co

min

g in

to c

omm

on u

sage

. In

add

ition

, th

ere

is w

ell-d

ocum

ente

d ev

iden

ce o

f au

to r

esid

ual

mar

ket

decl

ines

in

the

AIP

SO

ann

ual

repo

rts s

pann

ing

1990

-200

6.

V. P

rior R

esea

rch

Con

cern

ing

the

Effe

ct o

f CB

IS

S

imila

r to

the

first

hal

f of t

his

repo

rt pr

ovid

ing

an o

verv

iew

on

scor

ing,

A

IA fe

ars

that

the

anal

ysis

suf

fers

from

a s

ingu

lar

focu

s on

crit

ique

s by

a v

ery

limite

d nu

mbe

r of

con

sum

er a

dvoc

ates

with

neg

ativ

e pe

rcep

tions

of

scor

ing

high

light

ed w

ith “

man

y co

nsum

ers

feel

” or

“c

onsu

mer

s be

lieve

” la

ngua

ge,

whi

le i

gnor

ing

broa

der

asse

ssm

ents

of

co

nsum

er

view

s an

d ot

her

view

poin

ts

incl

udin

g in

sure

rs

and

acad

emic

s.

AIA

sug

gest

s w

ays

the

disc

ussi

on a

nd re

view

of e

ach

of

the

rese

arch

stu

dies

can

be

mad

e m

ore

bala

nced

. Ty

pes

of S

tudi

es

…

…

This

sec

tion

of th

e re

port

will

go

thro

ugh

the

repo

rts c

hron

olog

ical

ly, w

ith

The

liter

atur

e is

not

spa

rse.

C

ontra

ry to

the

NA

IC o

pini

on e

xpre

ssed

Page 17

xi

spec

ial

emph

asis

on

met

hodo

logy

and

the

fin

ding

s of

eac

h re

port.

A

lthou

gh th

ere

are

at le

ast 1

8 re

ports

of r

elev

ance

, the

lite

ratu

re re

mai

ns

som

ewha

t sp

arse

and

mor

e w

ork,

as

desc

ribed

in

Sec

tion

V o

f th

is

repo

rt, c

ould

and

sho

uld

be d

one.

…

in

the

draf

t re

port,

th

ere

have

be

en

thre

e m

ajor

st

udie

s us

ing

mul

tivar

iate

an

alys

is—

FTC

20

07,

Texa

s 20

04-2

005,

an

d E

PIC

A

ctua

ries

2003

.

Due

to

the

impo

rtanc

e of

pre

dict

ing

risk,

ins

uran

ce c

ompa

nies

hav

e lik

ely

com

plet

ed e

norm

ous

amou

nts

of in

tern

al r

esea

rch

conc

erni

ng th

e ef

fect

of

cr

edit-

base

d in

sura

nce

scor

es

on

loss

pe

rform

ance

an

d in

sura

nce

risk.

How

ever

, th

at d

ata

and

the

resu

lts a

re p

ropr

ieta

ry a

nd,

for

the

mos

t pa

rt, u

nkno

wn

to t

he p

ublic

. It

is w

orth

men

tioni

ng t

hat

acce

ss t

o th

ese

mod

els

and

the

corr

espo

ndin

g da

ta c

ould

pro

vide

tre

men

dous

add

ition

al in

form

atio

n to

the

over

all t

opic

.

Und

er

gene

ral

insu

ranc

e re

gula

tory

la

w

and

the

NC

OIL

m

odel

, re

gula

tors

ar

e gi

ven

full

acce

ss

to

cred

it sc

orin

g m

odel

s an

d m

etho

dolo

gies

.

Nat

ure

of S

tudi

es

…

Th

e N

AIC

, in

its 1

996

repo

rt de

scrib

ed b

elow

, has

crit

iciz

ed th

e st

udie

s th

at u

se lo

ss r

atio

as

the

depe

nden

t va

riabl

e an

d cr

edit

hist

ory

as t

he

pred

icto

r. Th

e N

AIC

rep

ort

poin

ted

out

that

cre

dibi

lity

of t

his

met

hod

rest

s on

un

derly

ing

assu

mpt

ions

. If

the

ratin

g va

riabl

es

with

in

the

exis

ting

prem

ium

are

not

com

plet

ely

accu

rate

the

n th

e an

alys

is o

f ne

w

varia

bles

is

not

valid

. Th

ere

are

hund

reds

of

ratin

g fa

ctor

s su

ch a

s ge

ogra

phic

rat

ing

terr

itory

, dr

ivin

g ex

perie

nce,

age

of

driv

er,

age

of

hom

e, v

ario

us d

isco

unts

and

sur

char

ges.

Sm

all

erro

rs i

n pr

icin

g a

num

ber o

f the

se fa

ctor

s co

uld

add

up to

sig

nific

ant o

vera

ll pr

icin

g er

rors

. In

add

ition

, a c

ompa

ny m

ay d

evia

te it

s pr

icin

g aw

ay fr

om tr

ue ta

rget

loss

ra

tios

for

mar

ketin

g re

ason

s, m

akin

g th

e lo

ss r

atio

s in

accu

rate

and

in

appr

opria

te a

s m

easu

res

for t

hese

stu

dies

. Th

ese

defic

ienc

ies

with

usi

ng lo

ss r

atio

s as

a d

epen

dent

var

iabl

e ha

ve

led

som

e, in

clud

ing

the

NA

IC in

its

1996

rep

ort,

to c

all f

or a

mul

tivar

iate

an

alys

is

in

orde

r to

m

easu

re

the

corr

elat

ion

betw

een

cred

it-ba

sed

insu

ranc

e sc

ores

and

ris

k of

los

s. S

ome

regu

lato

rs s

ugge

st t

hat

an

unbi

ased

and

mul

tivar

iate

ana

lysi

s is

nec

essa

ry to

det

erm

ine

the

effe

ct

of c

redi

t-bas

ed in

sura

nce

scor

es o

n lo

ss c

osts

afte

r ac

coun

ting

for

all

othe

r fac

tors

The

intro

duct

ion

to t

his

sect

ion

on t

he r

epor

ts i

n ge

nera

l an

d th

e N

AIC

rep

ort f

rom

199

6 le

aves

the

impr

essi

on th

at th

ere

still

hav

e no

t be

en a

ny m

ultiv

aria

te s

tudi

es d

one

on C

BIS

and

indi

cate

s th

at th

is is

a

prob

lem

in

as

sess

ing

whe

ther

C

BIS

m

erel

y du

plic

ates

ot

her

varia

bles

or d

emog

raph

ic fa

ctor

s.

Inde

ed, s

ever

al s

tudi

es o

f CB

IS h

ave

used

mul

tivar

iate

ana

lysi

s an

d ha

ve

esta

blis

hed

that

sc

orin

g do

es

not

mer

ely

dupl

icat

e ot

her

varia

bles

. In

par

ticul

ar, t

he 2

004-

2005

Tex

as s

tudi

es, t

he 2

003

EP

IC

Act

uarie

s st

udy

and

the

2007

FTC

stu

dy to

ok th

is a

ppro

ach.

List

ing

of R

epor

ts

N

atio

nal A

ssoc

iatio

n of

Insu

ranc

e C

omm

issi

oner

s, “

Cre

dit R

epor

ts

and

Insu

ranc

e U

nder

writ

ing,

” 19

96