Key Items Still Need to be Resolved in NCOIL Claims History Info Use Model

March 8, 2005

Model legislation that would restrict how insurers could use claims history information when underwriting property-casualty insurance coverage moved several steps closer to a vote when the National Conference of Insurance Legislators’ Property-Casualty Insurance Committee held a hearing on a proposed model act that enjoys significant support from insurance industry and agent representatives. The hearing was held in Hilton Head, S.C. during the March 3 through 6 NCOIL Spring Meeting.

Key items that remain to be resolved include 1) the number of claims without payments that would be allowed before a CWOP could be used to take an adverse action and 2) the timeframe from when an insurer issues a coverage binder and when that carrier could no longer use claims information to underwrite. The NCOIL P-C Committee has asked for interested party suggestions on these issues by April 1. Following that time, the committee will actively pursue its consideration of the draft.

Many other issues have already been worked out, including 1) whether the act should apply to renewal business, 2) whether to include restrictions on the number of natural disaster/water damage claims that might be considered, and 3) how to address filing requirements for insurers and for claims-history report providers. A number of technical revisions also have been resolved.

The proposed consensus draft—which agent and industry representatives finalized just days before the hearing—followed months of effort to reach agreement on a revised version of a claims database proposal that the committee considered in November 2004. At that time, legislators had voted not to consider their November draft so that interested parties might reach consensus on the issue and return with a compromise proposal in time for the spring meeting.

Prior to the March 3 hearing, those consensus efforts were at least partially unsuccessful. The Independent Insurance Agents & Brokers of America and the American Insurance Association submitted their own proposed substitute to the November 2004 model, while the Property Casualty Insurance Association of America and the National Association of Mutual Insurance Companies offered a second substitute. Ongoing efforts resulted in a compromise proposal.

Among other things the consensus model, as currently drafted, would:

• prohibit taking an adverse action based solely on claims/loss history of a previous property owner;

• prohibit taking an adverse action based on consumer inquiries or claims without payments, unless the insurer 1) proves that such claims relate to the carrier’s risk and 2) treats affected consumers in a manner approved by the commissioner;

• regarding new applicants, prohibit an insurer from using prior claims experience of the property or the consumer more than five (5) years old;

• largely prohibit an insurer from using claims/loss experience to underwrite after 30 days from when the insurer issued a coverage binder;

• require an insurer to re-underwrite and re-rate an insured within 30 days notice that claims information was incorrect or incomplete, and return any overpayment;

• make various disclosures to consumers, including, among other things, how an insurer uses claims history/loss information, whether the consumer’s data will be reviewed, and details of the prior claims history of a home that is for sale; and

• require filings by claims-history report providers.

Consideration of proposed claims database model legislation responds to a 2005 committee charge to, among other things, draft a model law on the issue. A copy of the proposed consensus model act will soon be available on the NCOIL Web site at www.ncoil.org. The November 2004 version is already posted.

NCOIL is an organization of state legislators interested in insurance legislation and regulation. Many legislators active in NCOIL either chair or are members of the committees responsible for insurance legislation in their respective state houses across the country.

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