Most States Opt for Limited Regulation of Insurance Scoring

July 9, 2003

Of the 19 states that enacted new laws in 2003 dealing with credit-based insurance scores, legislators in 13 states elected to follow the provisions of the model act developed by the National Conference of Insurance Legislators (NCOIL). The NCOIL model establishes reasonable regulation for the use of such scores in underwriting and rating.

Key provisions of the NCOIL model include:

—A requirement that insurers re-underwrite and re-rate policyholders whose credit reports were corrected;
—A requirement that insurers notify applicants that credit information will be used in underwriting and rating;
—A requirement that insurers notify consumers in the event of an adverse action based on credit information, including notification of up to four factors that were the primary influences on the adverse action;
—A restriction on consumer reporting agencies’ ability to provide or sell information submitted in conjunction with an insurance inquiry; and
—A requirement that insurers file their credit scoring models with the state Department of Insurance and have them considered a trade secret.

Four other states enacted laws that are less restrictive than the NCOIL model. Only two states—Virginia and Alaska—implemented statutes that are slightly more restrictive than NCOIL. The new Virginia law requires that credit information can only be used if it is derived within 90 days for new policies and within 120 days for renewals.

The Alaska statute prohibits certain factors, such as credit history affected by a joint account with a former spouse and credit history obtained more than 90 days before a policy is issued, from being used to calculate an insurance score.

Legislation is still pending in five states—California, Oregon, Wisconsin, Michigan, and Pennsylvania. California’s Assembly Insurance Committee will conduct a hearing July 9 on a bill (SB 691) to ban the use of insurance scores in underwriting and rating homeowners insurance.

The bill must pass the full Assembly by July 11 or it will be held over until 2004. In 2002, Maryland enacted a ban on the use of insurance scores to underwrite and rate homeowners policies and since enactment many consumers with good scores have seen a significant premium increase.

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