read Read

e-mail E-mailprint Print

NAMIC's State Laws and Legislative Trends

State Laws Governing Insurance Scoring Practices

Report Overview

NAMIC has revised and updated its analysis of state laws governing insurance scoring practices. The revised analysis, which is part of NAMIC's State Laws and Legislative Trends series, lists the various laws and regulations approved in every state aimed at regulating the use of consumer credit information for underwriting and rating purposes. The analysis includes a chart containing brief descriptions of all related statutory and regulatory provisions for each state, as well as a citation and link to the complete text of each provision. The report identifies states that have enacted legislation based on the insurance scoring model law developed by the National Conference of Insurance Legislators (NCOIL). In addition, the updated analysis identifies other notable regulatory developments related to insurance scoring.

Summary

To date, 48 states have taken some form of legislative or regulatory action on this important issue, with Pennsylvania and Vermont the lone exceptions. The scope of regulatory provisions adopted in each state varies considerably.

Even before insurance scoring emerged as a regulatory issue, several states (Arizona, California, Colorado, Idaho, Maine, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, Texas, Washington, and Wyoming) regulated the ability of consumer reporting agencies to provide credit reports for underwriting purposes.

In many states, regulation of insurance scoring has expanded in a variety of ways. For example, many recently enacted measures prohibit insurers from using certain types of negative credit rating factors to determine an insurance score. Other measures require insurers to notify applicants and policyholders that credit history information may be used as an underwriting or rating factor; require insurers to notify applicants or insureds that adverse credit-related decisions have been taken regarding pending applications or existing coverage based; require insurers to reevaluate underwriting and rating decisions based on disputed information found to be incorrect; and require insurers to provide state insurance departments with actuarial justifications to support the use of insurance scoring models. Some states have approved relatively stringent--and in some cases prohibitive--laws, while others have adopted more lenient measures.

NCOIL Model Act

Each of the factors listed above are addressed in the NCOIL Model Act Regarding Use of Credit Information in Personal Insurance. NAMIC State and Regulatory Affairs staff have actively participated in the policy deliberations that led to the creation of this model law, and have also advocated its adoption in numerous states. To date, 27 states (Alabama, Alaska, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Missouri, Mississippi, Maryland, Nebraska, New Hampshire, New York, North Dakota, Oklahoma, Oregon, Rhode Island, Tennessee, Texas, Virginia, and West Virginia) have approved laws or regulations that either replicate the basic NCOIL model language for each of these five factors, or address the underlying issue in some other way.

The complete NCOIL insurance scoring model law includes additional factors such as relevant definitions, indemnification of agents, prohibition on the sale of data submitted in conjunction with an insurance inquiry about credit history by consumer reporting agencies, and severability to ensure that if any part of the act is determined invalid due to interpretation of or change to the federal Fair Credit Reporting Act, the remainder of the act will remain in effect. NCOIL identifies the following 24 states as having essentially based the entirety of their current insurance scoring laws on the NCOIL model act: Alabama, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Mississippi, Nebraska, Nevada, New York, North Carolina, North Dakota, Oklahoma, Rhode Island, Tennessee, Texas, Virginia and West Virginia.

Prohibited Uses

NAMIC has identified a total 42 states that have either approved legislation or adopted regulatory provisions prohibiting certain uses of credit history information or banning the use of certain negative credit factors in the formulation of an insurance score. States that have adopted prohibitions on all or some of the NCOIL model's proscribed uses of credit history or certain negative credit rating factors include Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin.

Dispute Resolution

To date, 36 states have approved dispute resolution measures. States that have thus far adopted specific language setting forth the insurer's responsibility to re-underwrite and re-rate applicants when it is determined that incorrect or incomplete credit history information has been erroneously used include Alabama, Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Virginia, Washington, and West Virginia.

Initial Notification

Thirty-five states have approved measures requiring insurers to notify consumers that the insurer may obtain and utilize an insured or applicant's credit history information for underwriting and rating purposes. Included in this list are Alabama, Alaska, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wisconsin.

Adverse Notification

NAMIC's update has also determined that 39 states have enacted laws requiring insurers to notify and explain to consumers any adverse actions taken, in accordance with the federal Fair Credit Reporting Act. States that have adopted adverse notice requirements. These states include Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin.

State Filing Requirements

Thirty-five states have approved measures requiring insurers to file insurance scoring methodologies with the state insurance department. Several require this information to be filed along with all other pertinent information included in the state rate filing and approval process. The states that have so far adopted laws or regulations mandating the filing of credit history-related information include Alabama, Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Virginia, Washington, and West Virginia.

Prohibitions on Use of Credit History Information

NAMIC has also identified a small group of states (Georgia, Hawaii, Maryland, Oregon, and Utah) that have established actual prohibitions on the use of credit history information in certain circumstances. For the most part, these prohibitions pertain to private auto insurance coverage. In Georgia, private passenger auto writers are prohibited from using underwriting criteria that result in fictitious groupings of risks that contribute to unfair competition. Hawaii regulates auto insurance with what is arguably one of the more stringent provisions, prohibiting underwriting standards or rating plans from being based in whole or in part on a person's credit bureau rating.

In Maryland, auto and homeowner insurers are prohibited from refusing to underwrite, renew, cancel, or base particular payment plans in whole or in part on an individual's credit history information. Private passenger auto insurers are, however, permitted by Maryland law to use credit history information to rate new policies. Oregon Revised Statutes currently disallow the cancellation or nonrenewal of personal insurance coverage in cases where the policy was previously in effect for 60 days or longer, if the adverse action was based in whole or in part on credit history or an insurance score. Finally, Utah law prohibits auto insurers from using credit information from canceling or nonrenewing coverage in effect for 60 days or more, to determine rates except to establish premium discounts, and to refuse new or additional coverage to named insureds or household members.

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.