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NAMIC's State Laws and Legislative Trends

State Laws Governing Insurance Scoring Practices

Last Updated: Oct. 14, 2004

INSURANCE SCORING LINKS

State Adoption of Key NCOIL Model Law Provisions

The NCOIL Model Act Regarding Use of Credit Information in Personal Insurance represents a comprehensive approach to state oversight of insurance scoring practices. Its primary purpose is to provide consumer protections with respect to insurers' use of credit information for underwriting and rating purposes. The NCOIL model applies to virtually all forms of personal insurance: private passenger auto, homeowners, motorcycle, mobile-homeowners and non-commercial dwelling fire, as well as coverage for boats, personal watercraft, snowmobiles and recreational vehicles.

Many states have already taken steps to adopt the model law with little or no modification, while others have incorporated select features of the model into their insurance scoring laws. This table focuses on five key provisions of the NCOIL model law (viz., prohibited uses, dispute resolutions, initial notification, adverse action notification, and state filing requirements), and identifies states that have passed laws that either mirror these key features or address the underlying issues in some other fashion.

Prohibited Uses

The NCOIL model includes a list of prohibited uses of credit history information as well as negative factors that insurers are prohibited from utilizing in any insurance scoring methodology. The model specifically addresses unfair discrimination by prohibiting use of income, gender, address, zip code, ethnic group, religion, marital status, or nationality. It prohibits insurers from using credit information as the sole basis for denying, canceling, or nonrenewing coverage, or for determining renewal rates. It prohibits adverse action solely because a consumer does not have a credit card, or if a credit report or an insurance score is calculated over 90 days from the date the policy is written or renewed. It establishes standards for allowing insurers to consider absence of credit or inability to calculate a credit score in the underwriting and rating process, and it requires insurers to recalculate the insurance score using an updated credit report no less than every 36 months following the last occasion on which the insurer obtained credit information on the insured. The model also prohibits insurers from using several discrete factors in insurance scoring methodology. These include credit inquiries not initiated by the consumer; inquiries relating to insurance coverage; collection accounts with a medical industry code; multiple lender inquiries from the home mortgage industry within 30 days of one another; and multiple lender inquiries from the automobile lending industry within 30 days of one another.

Dispute Resolution and Error Correction

If it is determined through dispute resolution (as set forth in Fair Credit Reporting Act) that credit information of a current insured was incorrect or incomplete and notice is provided to the insurer, the insurer must re-underwrite and re-rate that consumer within 30 days. The insurer must also make any adjustments necessary to comply with its underwriting and rating guidelines, and refund any overpayment to the insured.

Initial Notification

Insurers or their agents must disclose (either in writing or in the same medium as the application for insurance) on the insurance application or at the time the application is taken that credit information may be obtained in connection with the application. The model also provides example disclosure statements.

Adverse Action

If an adverse action (defined to include denial, cancellation, increase in charge for or a reduction or other adverse change in the terms of coverage) is taken, the insurer shall provide notification (in accordance with requirements of the Fair Credit Reporting Act) to the consumer and explain the reasons behind such adverse action, including up to four factors that were the primary influences.

Filing Requirements

The model requires insurers that use insurance scores to underwrite or rate risks to file their scoring methodologies with the state department of insurance, which may include loss experience justifying the use of credit information. All such filings are to be considered trade secrets.

STATES

PROHIBITED USES

DISPUTE RESOLUTION

INITIAL NOTIFICATION

ADVERSE ACTION NOTIFICATION

FILING REQUIREMENTS

*Alabama

X

X

X

X

X

*Alaska

X

X

X

X

X

Arizona

X

    

X

  

Arkansas

X

X

X

X

X

California

          

Colorado

X

X

X

X

X

Connecticut

X

X

  

X

X

Delaware

X

X

X

X

X

Florida

X

X

X

X

X

Georgia

X

X

X

X

X

Hawaii

          

Idaho

X

        

Illinois

X

X

X

X

X

Indiana

X

X

X

X

X

Iowa

X

X

X

X

X

Kansas

X

X

X

X

X

*Kentucky

X

        

Louisiana

X

X

X

X

X

Maine

X

X

X

X

X

Maryland

X

X

X

X

X

Massachusetts

  

X

  

X

  

Michigan

  

X

X

X

X

Minnesota

X

  

X

  

X

Mississippi

X

X

X

X

X

Missouri

X

X

X

X

X

Montana

X

    

X

  

Nebraska

X

X

X

X

X

Nevada

X

X

X

X

  

New Hampshire

X

X

X

X

X

New Jersey

X

  

X

X

X

New Mexico

        

X

New York

X

X

X

X

X

North Carolina

X

X

  

X

X

North Dakota

X

X

X

X

X

Ohio

X

X

X

X

  

Oklahoma

X

X

X

X

X

Oregon

X

X

X

X

X

Rhode Island

X

X

X

X

X

South Carolina

X

X

X

  

X

South Dakota

X

        

Tennessee

X

X

X

X

X

Texas

X

X

X

X

X

Utah

X

  

X

X

  

Virginia

X

X

X

X

X

Washington

X

X

  

X

X

West Virginia

X

X

X

X

X

*Wisconsin

X

X

X

X

  

Wyoming

          

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Alabama*- Initial notification implicit in filing requirement that includes filing of any language given to insureds to advise them that credit history may be used as an underwriting or rating factor.

Alaska* - Insurers may only use credit history information once. For example if used to underwrite or rate, cannot be used to renew. Insurance score model filing requirements are very specific with 3 critical factors necessary to validate them.

Kentucky* - Establishes only one of the prohibitions/caveats enumerated via NCOIL. Prohibits declinations, nonrenewal or cancellations solely on credit or lack thereof.

Wisconsin* - Insurers should consider implementing policies that address these issues when using credit information in personal lines.

NAMIC does not present the information contained in this report as an exact and absolute portrayal of all insurance scoring-related laws that have been enacted in every state to date. Rather, it represents a comprehensive listing and summary analysis of the existing laws and recently enacted legislation specifically identified by NAMIC State and Regulatory Affairs staff as generated through its own internal intelligence and legislative and regulatory tracking tools as those which bear direct relevance to the insurance industry's utilization of insurance scoring.

This report is for use as a convenient tool for our members, and is not intended, and should not be considered to be, legal advice. Please consult your legal representatives.