Insurers Concerned With ‘Burdensome’ N.Y. Credit Score Regulations

February 24, 2005

Insurance companies are concerned that new regulations adopted by the New York Insurance Department regarding the use of credit information for personal lines coverage could be more burdensome than necessary.

The department’s Feb. 17 promulgation of rules dealing with Article 28 of the credit law generally follow the statute’s general intent, which was to allow insurers to use credit information when underwriting personal lines insurance policies, according to Kristina Baldwin, regional manager and counsel for the Property Casualty Insurers Association of America (PCI). However, she added, several rules included in the regulation bulletin are more problematic.

For example, if a consumer does not have credit information, insurers may now treat the consumer as having neutral credit information or make a filing with the Superintendent of Insurance. But this rule appears to indicate that the insurer must present information regarding such a filing for each consumer, which Baldwin said is “a clearly unrealistic expectation.”

Another requirement that policyholders may have new credit scores calculated once every 36 months means the insurer will have to underwrite and re-rate the policy based on the new information and make adjustments effective “as of the date of such report or score.” This could require the policy to be re-underwritten midterm rather than at the next renewal period, Baldwin noted.

The regulation also includes disclosure requirements and adverse action notice requirements that require insurers to produce more printed documents, a mandate that Baldwin said ultimately increases costs to insurers and slows down the underwriting process for consumers.

Under the new law, adopted during the last legislative session, insurers may use credit history as a factor in underwriting and rating homeowners and auto insurance. However, the law prohibits the use of certain factors like income, address, ZIP code, race, religion, color, sex, disability, national origin, ancestry, or marital status. It also requires insurers to disclose the use of credit history and to provide written notification to the consumer if credit use results in a negative action. Insurers using credit history must also file their models or methodology with the department.

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