Introduced by Senator Illuzzi of Essex-Orleans District
Subject: Banking and insurance; use of credit history
Statement of purpose: This bill proposes to regulate the use of credit information for personal insurance to protect consumers.
AN ACT RELATING TO USE OF CREDIT INFORMATION IN PERSONAL INSURANCE
It is hereby enacted by the General Assembly of the State of Vermont:
Sec. 1. 8 V.S.A. § 4724a is added to read:
§ 4724a. USE OF CREDIT HISTORY
(a) When used in this section:
(1) “Adverse action” means a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of any insurance, existing or applied for, in connection with the underwriting of personal insurance.
(2) “Affiliate” means any company that controls, is controlled by, or is under common control with another company.
(3) “Applicant” means an individual who has applied to be covered by a personal insurance policy with an insurer.
(4) “Consumer” means an insured or an applicant for a personal insurance policy whose credit information is used or whose insurance score is calculated in the underwriting or rating of a personal insurance policy.
(5) “Consumer reporting agency” means any person that, for monetary fees or dues or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information about consumers for the purpose of furnishing consumer reports to third parties.
(6) “Credit information” means any credit-related information derived from a credit report, found on a credit report itself, or provided on an application for personal insurance. Information that is not credit-related shall not be considered “credit information,” regardless of whether it is contained in a credit report or in an application or is used to calculate an insurance score.
(7) “Credit report” means any written, oral, or other communication of information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, or credit capacity that is used or expected to be used or collected in whole or in part for the purpose of serving as a factor to determine personal insurance premiums, eligibility for coverage, or tier placement.
(8) “Department” means the department of banking, insurance, securities, and health care administration.
(9) “Insurance score” means a number or rating that is derived from an algorithm, computer application, model, or other process that is based in whole or in part on credit information for the purposes of predicting the future insurance loss exposure of an individual applicant or insured.
(10) “Personal insurance” means private passenger automobile, homeowners’, motorcycle, mobile-homeowners’ and noncommercial dwelling fire insurance policies, and boat, personal watercraft, snowmobile, and recreational vehicle policies. Such policies must be individually underwritten for personal, family, or household use. No other type of insurance shall be included as personal insurance for the purpose of this section.
(b) An insurer authorized to do business in this state that uses credit information to underwrite or rate risks shall not:
(1) Use an insurance score that is calculated using income, gender, address, ethnic group, religion, marital status, or nationality of the consumer as a factor.
(2) Deny, cancel, or nonrenew a policy of personal insurance solely on the basis of credit information, without consideration of any other applicable underwriting factor independent of credit information and not expressly prohibited by subdivision (1) of this subsection. An insurer shall not be considered to have denied, cancelled, or nonrenewed a policy if coverage is available through an affiliate.
(3) Base an insured’s renewal rates for personal insurance solely upon credit information, without consideration of any other applicable factor independent of credit information. An insurer shall not be considered to have based rates solely on credit information if coverage is available in a different tier of the same insurer.
(4) Take an adverse action against a consumer solely because he or she does not have a credit card account, without consideration of any other applicable factor independent of credit information.
(5) Consider an absence of credit information or an inability to calculate an insurance score in underwriting or rating personal insurance, unless the insurer does one of the following:
(A) Treats the consumer as otherwise approved by the department if the insurer presents information that such an absence or inability relates to the risk for the insurer.
(B) Treats the consumer as if the consumer had neutral credit information, as defined by the insurer.
(C) Excludes the use of credit information as a factor and uses only other underwriting criteria.
(6) Take an adverse action against a consumer based on credit information, unless an insurer obtains and uses a credit report issued or an insurance score calculated within 90 days from the date the policy is first written or the renewal is issued.
(7) Use credit information unless not later than every 36 months following the last time that the insurer obtained current credit information for the insured, the insurer recalculates the insurance score or obtains an updated credit report. Regardless of the other requirements of this section:
(A) At annual renewal, upon the request of a consumer or the consumer’s agent, the insurer shall re-underwrite and re-rate the policy based upon a current credit report or insurance score. An insurer need not recalculate the insurance score or obtain the updated credit report of a consumer more frequently than once in a 12-month period.
(B) The insurer shall have the discretion to obtain current credit information upon any renewal before the expiration of 36 months, if consistent with its underwriting guidelines.
(C) An insurer is not required to obtain current credit information for an insured, despite the requirements of subdivision (A) of this subdivision (7) if one of the following applies:
(i) The insurer is treating the consumer as otherwise approved by the department.
(ii) The insured is in the most favorably priced tier of the insurer within a group of affiliated insurers. However, the insurer shall have the discretion to order credit information, if consistent with its underwriting guidelines.
(iii) Credit was not used for underwriting or rating the insured when the policy was initially written. However, the insurer shall have the discretion to use credit for underwriting or rating the insured upon renewal, if consistent with its underwriting guidelines.
(iv) The insurer reevaluates the insured beginning no later than 36 months after inception and thereafter based upon other underwriting or rating factors, excluding credit information.
(8) Use the following as a negative factor in any insurance scoring methodology or in reviewing credit information for the purpose of underwriting or rating a policy of personal insurance:
(A) Credit inquiries not initiated by the consumer or inquiries requested by the consumer for his or her own credit information.
(B) Inquiries relating to insurance coverage, if so identified on a consumer’s credit report.
(C) Collection accounts with a medical industry code, if so identified on the consumer’s credit report.
(D) Multiple lender inquiries, if coded by the consumer reporting agency on the consumer’s credit report as being from the home mortgage industry and made within 30 days of one another, unless only one inquiry is considered.
(E) Multiple lender inquiries, if coded by the consumer reporting agency on the consumer’s credit report as being from the automobile lending industry and made within 30 days of one another, unless only one inquiry is considered.
(c) Dispute resolution and error correction. If it is determined through the dispute resolution process set forth in the federal Fair Credit Reporting Act, 15 U.S.C. § 1681i (a)(5), that the credit information of a current insured was incorrect or incomplete and if the insurer receives notice of that determination from either the consumer reporting agency or from the insured, the insurer shall re-underwrite and re-rate the consumer within 30 days after receiving the notice. After re-underwriting or re-rating the insured, the insurer shall make any adjustments necessary, consistent with its underwriting and rating guidelines. If an insurer determines that the insured has overpaid the premium, the insurer shall refund to the insured the amount of overpayment calculated back to the shorter of either the last 12 months of coverage or the actual policy period.
(d) Initial notification.
(1) If an insurer writing personal insurance uses credit information in underwriting or rating a consumer, the insurer or its agent shall disclose, either on the insurance application or at the time the insurance application is taken, that it may obtain credit information in connection with the application. The disclosure shall be either written or provided to an applicant in the same medium as the application for insurance. The insurer need not provide the disclosure statement required under this section to any insured on a renewal policy if the consumer has previously been provided a disclosure statement.
(2) Use of the following example of a disclosure statement constitutes compliance with this section: “In connection with this application for insurance, we may review your credit report or obtain or use a credit-based insurance score based on the information contained in that credit report. We may use a third party in connection with the development of your insurance score.”
(e) Adverse action notification. If an insurer takes an adverse action based upon credit information, the insurer must meet all of the notice requirements of this section. The insurer shall:
(1) Provide notification to the consumer that an adverse action has been taken in accordance with the requirements of the federal Fair Credit Reporting Act, 15 U.S.C. § 1681m(a).
(2) Provide notification to the consumer explaining the reason for the adverse action. The reasons must be provided in sufficiently clear and specific language so that a person can identify the basis for the insurer’s decision to take an adverse action. The notification shall include a description of up to four factors that were the primary influences of the adverse action. The use of generalized terms such as “poor credit history,” “poor credit rating,” or “poor insurance score” does not meet the explanation requirements of this section. Standardized credit explanations provided by consumer reporting agencies or other third party vendors are deemed to comply with this section.
(1) Insurers that use insurance scores to underwrite and rate risks must file their scoring models (or other scoring processes) with the department. A third party may file scoring models on behalf of insurers. A filing that includes insurance scoring may include loss experience justifying the use of credit information.
(2) Any filing relating to credit information is considered to be a trade secret and exempt from public inspection and copying pursuant to 1 V.S.A. § 317(c)(9).
(g) A violation of this section is defined as a unfair method of competition or unfair or deceptive act or practice in the business of insurance.
Sec. 2. EFFECTIVE DATE
This act shall take effect on October 1, 2005.
The Vermont General Assembly
115 State Street