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PAG LIN
1 1 Section 1. NEW SECTION. 515.109A USE OF CREDIT
1 2 INFORMATION – PERSONAL LINES OF PROPERTY AND CASUALTY
1 3 INSURANCE.
1 4 1. DEFINITIONS. As used in this section unless the
1 5 context otherwise requires:
1 6 a. "Adverse action" means a denial or cancellation of, an
1 7 increase in any charge for, a reduction or other unfavorable
1 8 change in the underwriting of, or a reduction or other
1 9 unfavorable change in the terms or amount of coverage of
1 10 insurance that is in force or applied for.
1 11 b. "Affiliated insurer" means an insurance company that
1 12 controls, is controlled by, or is under common control with
1 13 another insurance company.
1 14 c. "Applicant" means a person who has applied for
1 15 insurance.
1 16 d. "Casualty insurance" means insurance providing coverage
1 17 against legal liability, including that for death, injury, or
1 18 disability, or damage to real or personal property.
1 19 e. "Consumer reporting agency" means a person that for
1 20 monetary fees, dues, or on a cooperative nonprofit basis
1 21 regularly engages in whole or in part in the practice of
1 22 assembling or evaluating credit information or other
1 23 information on persons for the purpose of furnishing credit
1 24 reports to third parties and that uses any means or facility
1 25 of interstate commerce for the purpose of preparing or
1 26 furnishing credit reports.
1 27 f. "Credit information" means any information related to a
1 28 person's credit that is contained in or derived from a credit
1 29 report or an application for insurance. Information that is
1 30 not related to a person's credit shall not be considered
1 31 "credit information" even if the information is contained in
1 32 or derived from a credit report or an application for
1 33 insurance or is used to calculate a credit score.
1 34 g. "Credit report" means any written, oral, or other
1 35 communication of any information by a consumer reporting
2 1 agency that does all of the following:
2 2 (1) Bears on a person's creditworthiness, credit standing,
2 3 or credit capacity.
2 4 (2) Is used or collected or expected to be used or
2 5 collected in whole or in part to serve as a factor in
2 6 establishing a person's eligibility for or pricing of
2 7 insurance.
2 8 h. "Insurance" means a personal line of property or
2 9 casualty insurance sold to an individual or family, including
2 10 but not limited to a landowner who is eligible for the family
2 11 farm tax credit under chapter 425A, primarily for
2 12 noncommercial purposes.
2 13 i. "Insurance score" means a number or rating that is
2 14 derived in whole or in part by utilizing a person's credit
2 15 information in an algorithm, computer application, model, or
2 16 other process that reduces the data to a number or rating for
2 17 the purpose of predicting the future insurance loss exposure
2 18 of an applicant or insured.
2 19 j. "Insured" means a person who is covered by insurance.
2 20 k. "Insurer" means a property or casualty insurer engaged
2 21 in the business of insurance who is regulated under this
2 22 chapter and who uses credit reports or insurance scores for
2 23 underwriting purposes, including but not limited to
2 24 acceptance, declinations, cancellations, and nonrenewal of
2 25 insurance, and tier placement.
2 26 l. "Property insurance" means insurance providing coverage
2 27 for direct or consequential loss or damage to property of any
2 28 kind.
2 29 m. "Tier" means a category into which insureds with
2 30 similar risk characteristics are placed for purposes of
2 31 determining a premium rate, including the application of
2 32 surcharges and discounts within a single insurer or for
2 33 placement of an insured from one insurer to another insurer
2 34 within an affiliated group of insurers.
2 35 2. DISCLOSURE.
3 1 a. If an insurer uses credit information for the purpose
3 2 of underwriting or rating risks, the insurer or the insurer's
3 3 agent shall disclose in writing, either on the application for
3 4 insurance or otherwise, at the time that the application is
3 5 taken, that the insurer may obtain and use credit information
3 6 in connection with such application. An insurer that uses
3 7 credit information for the purpose of underwriting or rating
3 8 risks for a renewal of insurance is not required to provide
3 9 the written disclosure statement required under this
3 10 subsection if the insured has previously been provided with
3 11 such a disclosure statement in connection with the insurance
3 12 policy.
3 13 b. An insurer that uses the following statement of
3 14 disclosure shall be deemed to be in compliance with this
3 15 subsection:
3 16 "In connection with this application for insurance, we may
3 17 review your credit report or obtain or use a credit-based
3 18 insurance score that is based on the information contained in
3 19 that credit report. We may use a third party in connection
3 20 with the development of your insurance score."
3 21 3. PROHIBITED CONDUCT. An insurer that uses credit
3 22 information for the purpose of underwriting or rating risks
3 23 shall not do any of the following:
3 24 a. Use an insurance score that is calculated based wholly
3 25 or in part on income, gender, address, zip code, race, ethnic
3 26 origin, religion, marital status, or nationality of an
3 27 applicant or an insured.
3 28 b. Cancel or refuse to renew a policy, or reject an
3 29 application for insurance based solely on credit information,
3 30 without consideration of any other applicable underwriting
3 31 factors independent of credit information that are not
3 32 otherwise prohibited under this subsection. An insurer that
3 33 cancels or refuses to renew a policy, rejects an application,
3 34 or takes other adverse action against an insured or an
3 35 applicant based in part on credit information shall disclose
4 1 that fact to the insured or applicant and shall explain why
4 2 credit information was a factor and what other underwriting
4 3 factors were also considered by the insurer as provided in
4 4 subsection 5.
4 5 c. Base an applicant's or an insured's new or renewal rate
4 6 for insurance solely upon credit information, without
4 7 consideration of any other applicable underwriting factors
4 8 independent of credit information that are not otherwise
4 9 prohibited under this subsection. An insurer that increases
4 10 the rate or takes other adverse action with respect to an
4 11 applicant's or an insured's new or renewal rate for insurance,
4 12 based in part on credit information, shall disclose that fact
4 13 to the applicant or insured and shall explain why credit
4 14 information was a factor, and what other underwriting factors
4 15 were also considered as provided in subsection 5.
4 16 d. Take adverse action against an applicant or an insured
4 17 solely because the applicant or insured does not have a credit
4 18 card account or credit history or the insurer is unable to
4 19 calculate an insurance score, without consideration of any
4 20 other applicable underwriting factors independent of the lack
4 21 of a credit card account or credit history or the inability of
4 22 the insurer to calculate an insurance score that are not
4 23 otherwise prohibited under this subsection. An insurer that
4 24 takes adverse action against an applicant or insured, based in
4 25 part on lack of a credit card account or credit history or the
4 26 inability of the insurer to calculate an insurance score,
4 27 shall disclose that fact to the applicant or insured and shall
4 28 explain why lack of a credit card account or credit
4 29 information or the inability of the insurer to calculate an
4 30 insurance score was a factor and what other underwriting
4 31 factors were also considered by the insurer as provided in
4 32 subsection 5. In addition, an insurer shall not give any
4 33 consideration to an applicant's or insured's lack of a credit
4 34 card account or credit history or the inability of the insurer
4 35 to calculate an insurance score for an applicant or insured as
5 1 a factor unless the insurer does one of the following:
5 2 (1) Obtains permission from the commissioner of insurance,
5 3 as provided by rule, to consider an applicant's or insured's
5 4 lack of a credit card account or credit history, or the
5 5 inability of the insurer to calculate an insurance score as an
5 6 underwriting factor, upon a showing by the insurer that this
5 7 factor is reasonably related to a calculation of the insurer's
5 8 risk.
5 9 (2) Considers an applicant's or insured's lack of a credit
5 10 card account or credit history, or the inability of the
5 11 insurer to calculate an insurance score as neutral credit
5 12 information, as defined by the insurer.
5 13 e. Take adverse action against an applicant or an insured
5 14 based on credit information that is contained in or derived
5 15 from a credit report issued or an insurance score calculated
5 16 more than ninety days before the adverse action is taken.
5 17 f. Consider credit information as an underwriting or
5 18 rating factor, unless the insurer obtains current credit
5 19 information from the insured at least once every thirty-six
5 20 months and either recalculates the insured's insurance score
5 21 or obtains a current credit report. In addition, an insurer
5 22 shall not consider credit information as an underwriting or
5 23 rating factor unless the insurer does all of the following:
5 24 (1) Upon the request of the insured or the insured's agent
5 25 at the annual renewal, the insurer underwrites and rates the
5 26 insurance policy again based upon a current credit report or
5 27 insurance score. An insurer shall not be required to obtain a
5 28 current credit report or recalculate an insurance score of an
5 29 insured more than once in a twelve-month period. An insurer
5 30 is not required to obtain a current credit report or credit
5 31 information or recalculate an insurance score of an insured on
5 32 an annual basis, if any of the following apply:
5 33 (a) The commissioner of insurance provides by rule that
5 34 the insurer is not required to do so.
5 35 (b) The insured is in the most favorably priced tier of
6 1 the insurer, within a group of affiliated insurers.
6 2 (c) Credit information was not used as an underwriting or
6 3 rating factor when the insurance policy was initially written.
6 4 (d) The insurer underwrites and rates the insured at least
6 5 once every thirty-six months after issuance of the insurance
6 6 policy and does not use credit information.
6 7 (2) Obtains current credit information, recalculates the
6 8 insurance score, or obtains a current credit report more
6 9 frequently if that is consistent with the underwriting
6 10 guidelines of the insurer. An insurer shall not obtain credit
6 11 information or a credit report or calculate an insurance score
6 12 for any arbitrary, capricious, or unfairly discriminatory
6 13 reason.
6 14 g. Use a methodology to calculate an insurance score that
6 15 considers any of the following a negative factor when
6 16 contained in a credit report or in credit information of an
6 17 applicant or an insured:
6 18 (1) Credit inquiries not initiated by the applicant or the
6 19 insured or credit inquiries initiated by the applicant or the
6 20 insured for the applicant's or insured's own personal use.
6 21 (2) Inquiries by other insurers relating to the
6 22 applicant's or insured's insurance coverage or application for
6 23 insurance coverage that are coded as such by a consumer
6 24 reporting agency.
6 25 (3) Debt collection accounts for medical services that are
6 26 coded as such by a consumer reporting agency.
6 27 (4) Multiple inquiries by lenders relating to an
6 28 applicant's or insured's home mortgage loan or application for
6 29 such a loan, if made within a thirty-day period of time and
6 30 coded as such by a consumer reporting agency. An insurer may
6 31 give such multiple inquiries the same weight in calculating a
6 32 credit score as the insurer would give one such inquiry.
6 33 (5) Multiple inquiries by lenders relating to an
6 34 applicant's or insured's automobile loan or application for
6 35 such a loan, if made within a thirty-day period of time and
7 1 coded as such by a consumer reporting agency. An insurer may
7 2 give such multiple inquiries the same weight in calculating a
7 3 credit score as the insurer would give one such inquiry.
7 4 4. OVERPAYMENTS OF PREMIUM. If it is determined through
7 5 the dispute resolution process set forth under the federal
7 6 Fair Credit Reporting Act, 15 U.S.C. } 1681i(a)(5), that the
7 7 credit information of an insured was incorrect or incomplete
7 8 at the time of the issuance or renewal of the insurance policy
7 9 and the insurer receives notice of such determination from
7 10 either a consumer reporting agency or from the insured, the
7 11 insurer shall underwrite and rate the insured again utilizing
7 12 the correct and complete credit information within thirty days
7 13 after receiving such notification. After underwriting and
7 14 rating the insured again, the insurer shall make any
7 15 adjustments that are necessary, consistent with the insurer's
7 16 underwriting and rating guidelines. If an insurer determines
7 17 that the insured has overpaid a premium as a result of
7 18 incorrect or incomplete credit information supplied to the
7 19 insurer, the insurer shall refund to the insured the amount of
7 20 the overpayment for either the last twelve months of coverage
7 21 or the actual policy period, whichever is less.
7 22 5. NOTICE OF ADVERSE ACTION. An insurer that takes
7 23 adverse action against an applicant or an insured that is
7 24 based in any way on the applicant's or insured's credit
7 25 information shall notify the applicant or insured, in writing,
7 26 in accordance with the requirements of the federal Fair Credit
7 27 Reporting Act, 15 U.S.C. } 1681m(a), that adverse action has
7 28 been taken by the insurer with respect to an application for
7 29 insurance or an insurance policy. Such notice shall give
7 30 reasons for the adverse action taken in language that is
7 31 sufficiently clear and specific that a layman can identify and
7 32 understand the basis for the insurer's decision to take
7 33 adverse action. Such notification shall describe at least
7 34 four factors that formed the primary basis for the insurer's
7 35 decision. The use of generalized terms such as "poor credit
8 1 history", "poor credit rating", or "poor insurance score" does
8 2 not constitute compliance with the requirements of this
8 3 subsection. Standardized credit explanations that are
8 4 provided by consumer reporting agencies or other third-party
8 5 vendors of credit information are deemed to satisfy the
8 6 requirements of this subsection. An insurer shall also
8 7 include a clear and specific explanation of any other
8 8 underwriting factors that were used by the insurer as a basis
8 9 for the insurer's decision to take adverse action with respect
8 10 to the applicant or insured.
8 11 6. INFORMATION FILED WITH THE COMMISSIONER OF INSURANCE.
8 12 a. An insurer that uses credit information for the purpose
8 13 of underwriting or rating risks shall file with the
8 14 commissioner of insurance specific, written criteria on how
8 15 credit information is utilized by the insurer in underwriting
8 16 and rating risks including but not limited to all of the
8 17 following:
8 18 (1) The characteristics or factors from a credit report
8 19 that are used as credit criteria or used in determining an
8 20 insurance score.
8 21 (2) In the case of insurance scoring, the algorithm,
8 22 computer program, model, or other process that is used in
8 23 determining an insurance score, along with the underlying
8 24 support, including statistical validation, for the development
8 25 of the algorithm, computer program, model, or other process
8 26 that is used in determining an insurance score.
8 27 (3) Any underwriting guidelines relating to the use of the
8 28 credit criteria or insurance scores, along with all
8 29 appropriate supporting material for the use of the guidelines.
8 30 b. At the request of the commissioner, an interested party
8 31 such as a scoring modeler shall file or discuss with the
8 32 commissioner, under confidentiality protection, the algorithm,
8 33 computer program, model, or other process that is used in
8 34 determining an insurance score, along with the underlying
8 35 support including statistical validation, for the development
9 1 of the algorithm, computer program, model, or other process
9 2 that is used in determining an insurance score.
9 3 c. Information filed with the commissioner pursuant to
9 4 this subsection shall be considered a confidential record and
9 5 be recognized and protected as a trade secret pursuant to
9 6 section 22.7, subsection 3.
9 7 7. INDEMNIFICATION. An insurer shall indemnify, defend,
9 8 and hold harmless an agent or producer of the insurer from and
9 9 against all liability, fees, and costs, arising out of or
9 10 relating to the action, error, or omission of the agent or
9 11 producer of the insurer who obtains or uses credit information
9 12 or insurance scores on behalf of the insurer within the scope
9 13 of the employment of the agent or producer and in compliance
9 14 with the instructions or procedures established by the insurer
9 15 for obtaining or using such information and in compliance with
9 16 any applicable law or regulation. Nothing in this section
9 17 shall be construed to create a cause of action for an insured
9 18 or a third party that does not otherwise exist in the absence
9 19 of this section.
9 20 8. CONSUMER REPORTING AGENCY – SALE OF CREDIT
9 21 INFORMATION.
9 22 a. A consumer reporting agency shall not provide or sell
9 23 any information, in any format, that was submitted or obtained
9 24 in whole or in part in conjunction with an insurance inquiry
9 25 about the credit information, credit report, or insurance
9 26 score of an applicant or an insured. Such information
9 27 includes, but is not limited to, the expiration date of an
9 28 insurance policy of an insured or any other information that
9 29 can be used to identify the expiration date of an insured's
9 30 insurance policy or the terms and conditions of the insured's
9 31 insurance coverage.
9 32 b. This subsection does not apply to the provision of
9 33 information, including data or lists, by a consumer reporting
9 34 agency to the agent or producer of the insurer from whom the
9 35 information was received, the insurer on whose behalf the
10 1 agent or producer acted, or to an affiliated insurer.
10 2 c. This section shall not be construed to restrict an
10 3 insurer from obtaining a claims history report or a motor
10 4 vehicle report of an applicant or an insured.
10 5 9. SEVERABILITY. If any section, paragraph, sentence,
10 6 clause, phrase, or any other provision of this section or its
10 7 applicability to any person or circumstance is held invalid,
10 8 including due to an interpretation of or a future change in
10 9 the federal Fair Credit Reporting Act, the invalidity does not
10 10 affect other provisions or any application of this section
10 11 which can be given effect without the invalid provision or
10 12 application, and to this end the provisions of this section
10 13 are severable.
10 14 10. APPLICABILITY DATE. This section applies to insurance
10 15 contracts or policies delivered, issued for delivery,
10 16 continued, or renewed in this state on or after October 1,
10 17 2004.
10 18 EXPLANATION
10 19 This bill relates to the use of credit information by
10 20 property or casualty insurers regulated under Code chapter 515
10 21 for the purpose of underwriting or rating risks for personal
10 22 lines of property and casualty insurance. The bill applies to
10 23 insurance that is sold to individuals and families, including
10 24 but not limited to landowners who are eligible for the family
10 25 farm tax credit under Code chapter 452A, primarily for
10 26 noncommercial purposes.
10 27 The bill defines "credit information", "credit report",
10 28 "insurance score", and related terms for purposes of the bill.
10 29 The bill provides that if an insurer uses credit
10 30 information for the purpose of underwriting or rating risk,
10 31 the insurer or the insurer's agent shall disclose that fact in
10 32 writing, either on the application for insurance or at the
10 33 time that the application is taken or at the time of a renewal
10 34 of insurance, if such notice has not been previously given.
10 35 The bill prohibits an insurer that uses credit information
11 1 from using an insurance score that is based wholly or in part
11 2 on income, gender, address, zip code, race, ethnic origin,
11 3 religion, marital status, or nationality of an applicant or
11 4 insured. The bill also prohibits an insurer from canceling,
11 5 refusing to renew, or rejecting an application for insurance,
11 6 basing a new or renewal rate for insurance, or taking any
11 7 other adverse action against an insured or an applicant solely
11 8 on the basis of credit information.
11 9 The bill also prohibits an insurer from taking adverse
11 10 action against an applicant or insured solely because that
11 11 person does not have a credit card account or credit history
11 12 or the insurer is unable to calculate an insurance score. In
11 13 addition, an insurer shall not give any consideration to a
11 14 person's lack of such credit information unless the insurer
11 15 either obtains permission from the insurance commissioner, as
11 16 provided by rule, to consider such information, upon a showing
11 17 by the insurer that this factor is reasonably related to a
11 18 calculation of the insurer's risk or the insurer considers the
11 19 lack of credit information as neutral credit information, as
11 20 defined by the insurer.
11 21 The bill also prohibits an insurer from taking adverse
11 22 action against an applicant or insured based on credit
11 23 information from a credit report or an insurance score that is
11 24 not current or has not been updated as required by the bill.
11 25 The bill prohibits an insurer from using a methodology to
11 26 calculate an insurance score that considers certain
11 27 information a negative factor, such as credit inquiries
11 28 initiated for the personal use of the applicant or insured,
11 29 inquiries by other insurers relating to insurance applications
11 30 or coverage, debt collection accounts for medical services,
11 31 and multiple inquiries by lenders relating to a home mortgage
11 32 or automobile loan or application that are made within 30
11 33 days.
11 34 The bill provides that if an insurer is notified by a
11 35 consumer reporting agency or the insured that it has been
12 1 determined through the dispute resolution process of the
12 2 federal Fair Credit Reporting Act that the credit information
12 3 of an insured was incorrect or incomplete, the insurer shall
12 4 underwrite and rate the insured again within 30 days of
12 5 receiving such notice by utilizing correct and complete credit
12 6 information. If the insurer determines that the insured has
12 7 overpaid a premium as a result of the mistake, the insurer is
12 8 required to refund the amount of the overpayment to the
12 9 insured for either the last 12 months of coverage or the
12 10 actual policy period, whichever is less.
12 11 The bill specifies how an insurer that takes adverse action
12 12 against an applicant or insured shall give notification of
12 13 such adverse action in accordance with the requirements of the
12 14 federal Fair Credit Reporting Act by giving reasons in clear
12 15 and specific layman's language that include a description of
12 16 at least four factors that formed the primary basis for the
12 17 insurer's decision.
12 18 The bill requires an insurer that uses credit information
12 19 to file certain information with the insurance commissioner,
12 20 such as the factors used as credit criteria, the methodology
12 21 for determining an insurance score, and underwriting
12 22 guidelines used. The bill also requires an interested party,
12 23 such as a scoring modeler, to file or discuss methodologies
12 24 used in determining an insurance score. The bill provides
12 25 that such information discussed or filed shall be considered
12 26 confidential and protected as a trade secret under Code
12 27 section 22.7, subsection 3.
12 28 The bill requires insurers to indemnify, defend, and hold
12 29 harmless all agents and producers of the insurer for any
12 30 liability that arises out of the use of credit information or
12 31 insurance scores on behalf of the insurer, so long as such use
12 32 is done within the scope of the employment of the agent or
12 33 producer and in compliance with the instructions or procedures
12 34 established by the insurer and with any applicable law or
12 35 regulation.
13 1 The bill prohibits a consumer reporting agency from
13 2 providing or selling information which was obtained or
13 3 submitted in conjunction with an insurance inquiry about the
13 4 credit information, credit report, or insurance score of an
13 5 applicant or insured.
13 6 The bill provides that if any part of the bill or its
13 7 applicability to any person is held invalid, including because
13 8 of an interpretation of or a future change in the federal Fair
13 9 Credit Reporting Act, the invalidity does not affect other
13 10 provisions or any applicability that can be given effect
13 11 without the invalid provision or application.
13 12 The bill takes effect on July 1, 2004, and applies to
13 13 insurance contracts or policies delivered, issued for
13 14 delivery, continued, or renewed in this state on or after
13 15 October 1, 2004.
13 16 LSB 5774SS 80
13 17 av/sh/8
Text: SF02170 Text: SF02172 Text: SF02100 - SF02199 Text: SF Index Bills and Amendments: General Index Bill History: General Index
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