Florida vows to implement credit scoring rule despite protests

Florida insurance officials are vowing to enforce a new rule regarding the use of credit scores in insurance starting September 1, despite protests from the industry that the rule is too stringent.

The Financial Services Commission unanimously adopted the rule that requires detailed reporting by insurers on their use of credit scoring and its effects on consumers.

FSC, citing continued delays due to litigation and ongoing potential harm to Floridians due to the use of credit information by insurers, authorized Insurance Commissioner Kevin McCarty to begin implementing the rule,

But the requirement is still being opposed by various industry trade groups. They maintain that compliance with the rules would be so complicated that it would amount to a ban on credit scoring and they question the authority of the commissioner to enforce the provisions.

Insurers’ lawsuit

The Florida Insurance Council, the American Insurance Association, the Property and Casualty Insurers of America and the National Association of Mutual Insurance Companies have filed suit against the rule in Leon County Circuit Court.

The rule requires insurers making filings to the Office of Insurance Regulation to provide information proving the use of credit information does not disproportionately affect persons of any race, color, religion, gender, age or place of residence.

The filings must include a complete description of the methodology utilized when using credit information. Insurers must supply data showing what impact having little or no credit history would have on policyholders and also certify that that it will correct any errors in premiums charged to Floridians.

The rule also mandates compliance with the Fair Credit Reporting Act and calls for a biannual review of credit information when requested by the insured.

In addition, insurers would be required to establish procedures for appeal by applicants whose credit was negatively impacted by divorce, death of a spouse or temporary unemployment.

“Florida’s cultural and ethnic diversity is unparalleled, but unfortunately this is also an environment where credit scoring often victimizes innocent consumers,” McCarty said. “Many religious and ethnic minorities often have limited or no credit history by choice or because they are beginning to climb the economic ladder. This should bear no relationship to what they pay for insurance or to what coverage is available to them.”

Credit report concerns

According to McCarty, one public study found that one in four credit reports contains errors or omissions serious enough to disqualify consumers from purchasing a home, a car or getting a job.

He has also noted that a national insurance company paid a multi-million dollar fine to settle state charges that it used negative credit information to deny or discourage applicants from obtaining automobile coverage.

The rule was originally proposed in 2004 to implement provisions of legislation enacted in 2003 that permitted the use of credit score. That statute was based on a model credit scoring law endorsed by the National Conference of Insurance Legislators.

But it has been held up due to industry complaints over how regulators are attempting to interpret and implement the law.

Now, the OIR has notified insurers that it is not waiting any longer and intends to enforce the provisions of the controversial rule effective September 1.

Industry complaint

Representatives for insurers have maintained that the state’s implementation strategy goes beyond the requirements of the law by forcing insurance companies to document the effects of insurance against demographic information to which they claim they do not have access and do not collect.

PCI has charged the Office of Insurance Regulation with attempting an end-run around the Florida law by seeking to implement what it says is a complicated and burdensome credit-based scoring rule.

In March 2005, PCI, and other insurance trade associations filed suit challenging the specific provisions of the rule as contrary to statute, and also arguing that the OIR is exceeding its authority in enforcing the regulation. Insurers maintain that OIR relied on a statute that did not give it the authority to promulgate the rule under the reorganization of the Department of Financial Services.

“This is an illegal act that is unenforceable,” William Stander, PCI assistant vice president and regional manager, said. “It is a sad day when the state’s regulatory body flaunts the authority of the legal system and runs roughshod over due process rights. We will do everything possible to prevent them from enforcing this illegal rule.

“The bottom line is that insurance scoring helps to lower insurance premiums for most consumers, which makes insurance coverage more available and affordable,” Stander added. “This rule does not protect consumers; it harms them by violating the law and disrupting the marketplace.”

The American Insurance Association says the rule goes far beyond what other states have done by requiring insurers to meet a new “disproportionate effect” standard.

Demographic data

“With this requirement, OIR may have effectively eliminated the use of credit information because insurers do not collect the demographic data necessary to prove that there is no disproportionate effect,” noted Cecil Pearce, AIA vice president for the Southeast region.

“While OIR contends that it is protecting consumers with this rule, the reality is they may be denying, at a critical time, the use of a tool that is key to developing a healthy and competitive insurance market in Florida,” said Pearce.

“This is an illegal act that is unenforceable.”

William Stander, PCI assistant vice president

Topics Florida Carriers Legislation