Agents, insurers and politicians may never agree on how to handle credit-based insurance scoring, but last November the National Conference of Insurance Legislators (NCOIL) passed out of its property/casualty committee a consensus model bill to regulate the use of credit information in personal insurance. And a wide range of groups, from the Alliance of American Insurers to the Independent Agents and Brokers of America, approved of the model legislation.
Thirteen states—including Texas and Oklahoma—have based bills currently making their way through the legislatures on the model, which prohibits insurers from using credit information as the sole basis for denying, canceling or non-renewing a policy or increasing an insured’s renewal rates. It also prohibits insurers from taking an adverse action against an insured for not having a credit card account and requires them to consider an applicant with no credit history as having neutral credit.
Insurers would be required under the model bill to recalculate and re-rate a policy annually based on updated credit information at the request of the policyholder or the insured’s agent. And it prohibits insurers from basing their scoring on home lender inquiries or medical bill collection accounts. In addition, insurers must re-underwrite and re-rate a policy within 30 days of any corrections made to a credit report, and must notify the applicant that their credit information will be used and notify a policyholder of any adverse action taken based on credit information.
Lastly, the bill requires insures to file their scoring models with the state, while the state guarantees that the models will be treated as trade secrets.
Proposed by the late state Rep. Tim Osmond (R-Ill.) and state Rep. Craig Eiland (D-Texas), the model bill does not call for any outright ban of insurance scoring and is “meant to be kind of a median point,” said NCOIL spokesperson Candace Frick. How and when a model bill such as this actually gets proposed and passed in states around the country depends a lot on timing, she added.
“We hit it kind of right,” Frick said. “It was ready in time for pre-filing. … In some states, the language is almost verbatim.”
But just because insurers and the lobbying groups that represent them signed off on NCOIL’s model bill does not necessarily mean they won’t put up a fight when bills based on the model get proposed in the states.
Proposed legislation in Nebraska, unlike the NCOIL bill, does not guarantee that scoring models filed with the state will be protected as trade secrets, so it’s understandable the Alliance submitted testimony objecting to it. But they also objected to the bill’s prohibition of “sole-basis” use of credit information, arguing that federal law already provides enough consumer protection, even though that is the same provision contained in the NCOIL model.
“No one left the room completely happy with what was produced,” explained Bob Zeman, NAII senior vice president. “Models produced by national organizations like NCOIL provide some guidance, but that doesn’t mean that that model law should immediately be exported to every state.”
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