Kansas Bulletin on Credit Scoring’s ‘Sole Use’ Meets With Industry Resistance

The current Kansas Insurance Department regulation as well as a proposed bulletin on the use of credit-based insurance scores significantly alters the Kansas Insurance Score Act, one of 20 state laws based on the NCOIL model, and these alternations place burdensome compliance obligations on insurance companies, the National Association of Mutual Insurance Cos. testified yesterday.

“NAMIC believes that the Kansas Insurance Department’s interpretation of the Kansas Insurance Score Act, as reflected by the proposed bulletin as well as by current regulation, requires clarification and revision,” testified Central Region State Affairs Manager Joe Thesing.

Thesing testified on proposed Bulletin 2004-6 regarding implementation of the Kansas Insurance Score Act (KSA 2003 Supp. 40-5101, et seq.) and current regulation (KAR 40-1-50) on the
use of credit-based insurance scores.

“Included in the introduction of draft Bulletin 2004-6, is the Department’s interpretation of ‘sole use,’ which asserts that individuals with the worst credit history are entitled to the same treatment
as individuals with the best credit history unless there is a non-credit related reason to take an ‘adverse action,’” Thesing said. “The Kansas Department of Insurance believes that at least one other negative factor must be present for credit scoring to be used in compliance with the Department’s regulation, an interpretation of the NCOIL model vastly different from virtually every other state with similar laws or regulations.”

Earlier this week, at the National Association of Insurance Commissioners’ meeting in Alaska, the Market Regulation and Consumer Affairs (D) Committee adopted a report authored
by the Credit Scoring Working Group that includes the following interpretation of “sole use”:

“An insurer must consider other relevant factors, in addition to credit information, in the underwriting decision. An insurer shall be prohibited from deeming other underwriting factors irrelevant for new or renewal business, regardless of how favorable these other underwriting
factors are, if a person’s credit score does not meet a specified threshold. For example, an insurer should be prohibited from declining to write a policy when the credit score is below some specific value. An insurer should not be prohibited from declining to write a policy when the credit score is below a specific value and the driver has had several accidents.”

Also, NCOIL has issued a statement through Property & Casualty Committee Chair and North Dakota Rep. George Keiser clarifying that the intended meaning of “sole use” was to ensure that factors other than credit would be considered but that credit experience can be the definitive factor, Thesing said.

Both NCOIL and the NAIC Market Regulation and Consumer (D) Affairs Committee agree that an individual’s credit-based insurance score can be the determining factor in making an adverse underwriting decision, just not the only factor considered.