PCI Suggests Changes to Proposed Credit Report Rules in Oregon

June 10, 2004

On June 3, the Property Casualty Insurers Association of America (PCI) raised concerns about proposed regulations designed to implement a 2003 law that restricts insurers’ use of credit information for reviewing applications and determining rates.

“Oregon’s credit law enacted last year balances consumer protections with the need for insurers to rely on sound, reliable information contained in insurance scores,” said Sam Sorich, vice president and western regional manager of PCI. “It allows insurers to use credit history to rate and underwrite policies, but places limits on the use of credit information to rerate policies that are renewed.”

The proposed regulations are inconsistent with provisions in last year’s law. The Oregon legislature prohibited the use of certain credit factors that may not be considered for insurance underwriting or rating. The list of prohibited factors does not include credit factors that result from “extraordinary life circumstances.”

“The legislature has spoken clearly on which credit factors may not be considered by insurers,” Sorich testified. “The director of the Oregon Department of Consumer and Business Services does not have the power to overrule the legislature. The proposed rule should be amended to make it clear than an insurer has the option to exclude credit factors related to extraordinary life circumstances, but there is no mandate to implement the exclusion.”

Also, the rules should clarify that an insurer that permits an extraordinary life circumstance exception does not violate the statutory standard of unfair discrimination, Sorich added.

The proposed rule also would allow a policyholder to rescind his or her request for a rating adjustment, even though current law makes no mention of the right to rescind that request.

“Allowing policyholders to rescind their rerating requests would needlessly increase insurance costs and create confusion,” Sorich testified. “The proposed rules would force an insurer to incur the costs of going through the rerating process and then, at the last minute, allow the policyholder to rescind the request, making the insurer’s expenditure of time and resources a complete waste. These costs would ultimately be included in the premiums that insurers charge to their customers.”

The proposed rules also attempts to explain when an adverse underwriting decision occurs, but the description is inconsistent with the plain meaning of the law, Sorich said.

“An adverse underwriting decision means an increase in any charge,” Sorich said. “The proposed rules imply that an insurer can increase a charge when it makes an initial offer of insurance, which cannot occur. The plain meaning of the word ‘increase’ makes it illogical to apply the term to an initial charge for insurance.”

Nearly 300 PCI members conduct business in Oregon, representing 41 percent of the private passenger auto market and 30 percent of the homeowners’ market.

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