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State laws on insurer use of credit information

One way that homeowner and auto insurance companies evaluate you as a potential customer is to check your credit score when you apply for a new policy. Credit scores are one factor they use in deciding whether or not to sell you a policy and in setting your rate. Insurers say that credit scores are good predictors of whether someone will file a claim; they say folks with low scores tend to file more claims.

The use of credit scoring is a contentious issue. Consumer groups say that the use of scores discriminates by race and income. Insurers say that credit scores are blind to these factors. Most states have taken steps to restrict insurers' use of credit information, or at least attempt to be aware of how insurers use them by requiring filings of the scoring models.

Home and auto insurance companies also make ample use of "insurance risk scores," which are similar to credit scores but weigh credit factors differently. 

The National Council of Insurance Legislators (NCOIL) created a "model act" concerning credit information in personal insurance and many states have adopted the act as law. NCOIL's model says, in part: "Insurers may not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. Insurers may not base rates solely on credit score or consider absence of a credit history. Insurers must recalculate a consumer's credit score after three years. Insurers must file scoring models with state departments of insurance."

State laws on insurer use of consumer credit information
Alabama
Make procedures used to obtain credit reports and insurance scores available to commissioner. If use credit scoring, file the scoring model with the commissioner. May not calculate score based on lack of credit history. May not use credit score as sole reason to deny coverage or refuse to renew.
Alaska

If using credit information in underwriting or rating, disclose that fact at the time the application is taken. Must consider in combination with other factors. May not consider absence of credit history. File credit scoring model with commissioner.

Use departments’ consumer brochures to inform the public about credit scoring.

Arizona

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

Must provide specific reasons for adverse decision based on credit history or credit score.

Must get credit information promptly; cannot cancel or decline coverage more than 30 days after date of application based on credit report.

A consumer reporting agency shall not sell data that includes information about an insurance score.

In the event of an adverse underwriting decision, provide the specific reasons. If based on credit-related information, must decide factors that were primary cause. May not use the following credit-related factors for property or casualty premiums: absence of credit history, credit history based on collection of medical bills, total available credit, etc.

Arkansas

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Form for report on number of policies with increase/decrease in premium due to credit scoring.

California

Form for report on number of policies with increase/decrease in premium due to credit scoring.

Users of credit reports who deny insurance or increase the prices charged on the basis of information contained in the reports must disclose the information that was the basis for the adverse decision.

Colorado

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting. Must notify consumers that it will be using credit report for determination of eligibility for coverage or to determine premiums.

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Must notify consumers that new or updated credit information will be used in insurance underwriting or rating.

Home insurance: An insurer is required to provide notice to an applicant if the insurer uses credit scoring, claims history of the property, or clams history of the applicant in determining whether to insure the applicant’s property.

Connecticut
File measurement tools with the department. May only be used for new business. May not consider lack of credit history. Demonstrate coordination with expected risk of loss. Disclosure to customer.
Delaware

May not use credit report or score unless the company has obtained authority to do so in its rate filing. File supporting information showing it is actuarially supported and is not the sole basis for denying coverage or assigning the consumer to a premium class. May not assign a higher rate because the consumer has no credit history.

May consider insufficient credit history or no available credit history in setting a premium or rate, or underwriting an insurance policy, to the extent such us is actuarially justified and consistent with the rate filing.

Models filed with the commissioner shall be considered as confidential proprietary information.

District of Columbia
No provision
Florida
An insurer shall notify an insurance applicant in writing, or in the same medium as the application, that a credit report will or may be requested as part of the application process. If the application is denied, the insurer must tell the applicant in the notice of the denial how a copy of the credit report can be obtained so the applicant can identify the items that resulted in the denial.

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Georgia

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Insurer may cancel, nonrenew or decline a policy based on an individual’s credit report. Insurer shall file this information quarterly with the commissioner. Insurer shall provide notice and the specific reason for the decision to the insured.

Auto insurance: An insurer shall not use underwriting criteria or guidelines that result in the fictitious grouping of risks and results in unfair discrimination. The use of credit reports in determining an applicant’s or insured’s acceptability for coverage may create fictitious grouping and unfair discrimination.

Hawaii
Auto insurance: Insurer shall not base standard or rating plan upon a person’s credit bureau rating.
Idaho

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

May not charge a higher rate or cancel coverage based primarily on a credit rating or credit history.

Aggregate weight given to noncredit factors must be at least as great as the aggregate weight given to credit factors. Items identified as trade secrets are not subject to public disclosure. Insurers must retain documentation for five years.

Illinois

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department. A certification that the treatment is actuarially justified is required.

Shall review and consider an exception to the risk score based on extraordinary life events, such as a catastrophic illness, divorce, death of a spouse, child or parent, involuntary loss of employment for three months or more, or identity theft.

Indiana

Submit to insurance department information on how credit information is utilized in underwriting, including the factors from a credit report that are included in a credit score, the computer model used to determine a credit score, any underwriting guidelines related to the use of credit scores and documentation to demonstrate the correlation between credit information and expected risk of loss.

May not use credit scores unless the information is filed with the department.

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Iowa
May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.
Kansas

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Answer questions about above legislation.

Document factors considered in addition to credit score. Maintain evidence to support adverse action. Provide an explanation to an insured adversely affected.

Kentucky
Auto insurance: May not refuse to issue or renew a policy solely because of credit history, or lack of credit history of the applicant.
Louisiana

Auto liability insurance: Prohibits an insurer from terminating, refusing to renew or refusing to issue insurance because the insured has declared bankruptcy.

Auto and home insurance: May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Right of an insured to be exempt from the use of adverse credit information directly or indirectly caused by Hurricane Katrina and/or Hurricane Rita. All insurers writing personal lines are advised and directed to ignore all unfavorable entries entered into an individual’s credit record beginning with entries posted on Aug. 26, 2005, and all entries posted thereafter related to Hurricane Katrina and/or Hurricane Rita.

Maine

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

Insurer must notify policyholder of reason intend to nonrenew, such as “credit report.”

May not use an insurance score calculated using income, gender, ZIP code, religion, etc. or raise rates based solely on credit score. Provide notice to consumer.

Disclose procedures to consumers to correct inaccurate credit reports.

Maryland
May not refuse to underwrite based solely on credit history.

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

Insurers that use credit reports or credit scores must provide the commissioner with underlying information so the commissioner can ensure that reports are used in accordance with the law. Must notify consumers of actual reason for an adverse action.

May not use credit history to rate or refuse to underwrite homeowners coverage. May not use credit history to refuse to renew an auto policy or increase its premium. May use credit history to rate a new auto policy. Advise applicant that credit history is being used. May not consider the absence of a credit history as a factor.

Auto insurance: Must provide a policyholder statement on rating factors. If use credit scoring, explain how it may cause an increase in premiums.

Massachusetts

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

If coverage is denied or price increased because of credit report, must notify consumer of right to receive a credit report.

Michigan

File formula used to compute credit score with the department. Must rescore at the request of the policyholder. Notify consumers of their score and the discount tier they are in.

Insurers may not use credit scores as a rating factor.

Minnesota

May not reject, cancel or nonrenew a policy solely on the basis of credit information. If will use credit information, must notify consumer. If use a credit scoring system, must have methodology on file with the commissioner.

Code sections limiting collection of information do not apply to credit scoring, as long as the agent informs the policyholder.

Mississippi
Disclose to consumer that insurer may gather and consider credit information. File scoring models with department. Must inform applicant if credit score or report adversely affected him.
Missouri

May not use credit report or credit score as the sole rating factor. Must disclose the fact that will gather credit information. Must inform applicant if credit score or report adversely affected him.

Home insurance: Insurer must inform the Dept. of Insurance that it is using credit history as an underwriting guideline.

Montana

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Most recalculate credit score after three years. File scoring models with department.

Montana law requires notification to consumers when their credit history adversely affects their ability to obtain or renew insurance.

Nebraska

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider solely the absence of a credit history. Most recalculate credit score after three years. File scoring models with department.

Auto insurance: Policy must be accompanied by disclosure stating if any credit-based rating was used to determine rate charged for coverage.

Nevada

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years.

At renewal of a policy, the consumer credit report or insurance score used on the policy with the earliest effective date may be used, provided that the credit information is not more than 36 months old.

New Hampshire

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

If use credit scoring, must establish written standards to prevent discrimination and submit scoring model to the insurance department for review. Update credit score at least every three years. Submit to commissioner information on the factors considered and the statistical validation.

New Jersey

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

Insurance scoring is permitted, provided that consumer protections are maintained. Submit model to department for review; credit score may be considered as only one of factors in determining rates; provide specific information if the insurer takes an adverse action.

New Mexico

All insurers that use credit scoring in underwriting or rate making must submit all portions of the programs that include the use of credit scoring to the Insurance Division.

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Standards for the notification required in statute.

New York

Requires users of consumer reports to advise the consumer of adverse action taken in reliance on the report.

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

May not take an adverse action based on a list of situations and events. Filings of scoring models must include listed information.

Home insurance: Must give specific reasons for cancellation.

North Carolina
Auto insurance: May not use credit reports as sole rating factor. Must notify consumer if will be used. File scoring models with insurance department. Requirements for insurers who have trade secret pages in their credit scoring models.
North Dakota
May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score. May not consider absence of a credit history unless insurer treats the consumer as otherwise approved by the Insurance Commissioner if insurer presents information that such absence relates to the risk for insurer, if consumer is treated as through the credit information is neutral, or if credit information is excluded as a factor. Must recalculate credit score after three years. File scoring models with department.
Ohio
Insurers must establish that credit history and credit scores are valid risk characteristics. May not use for discriminatory purposes.
Oklahoma

Insurers that use credit history or credit scores must provide the board with underlying information to show they are using the information in accordance with OK law. Notify the insured of any adverse action taken as a result of the credit history or credit score.

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Oregon

Insurer, agent or insurance support organization may not prepare or request an investigative consumer report about a person involving an insurance transaction unless the insurer or agent informs the person that he may request to be interviewed in connection with the preparation of the report and that the person may request a copy of the report.

Prior to use, must notify consumer that credit history will be used. Must notify consumers during the application process that consumer may request information about the use of credit histories or insurance scores. Notice may be either in writing or in the same medium as the medium in which the application is made. The statement must address the following items: (a) Why the insurer uses credit history or insurance scores, (b) How the insurer uses credit histories or insurance scores, (c) What kinds of credit information are used by the insurer, (d) Whether a consumer's lack of credit history will affect the insurer's consideration of an application, (e) Where the consumer may go with questions. An insurer that uses credit history or insurance score in connection with a renewal shall notify consumer of that use when renewal offer is made. Notice shall address the items above. In addition, insurer shall inform consumer that consumer has a right annually to request the insurer use current credit information in the renewal process and that insurer will update the credit information used upon receiving such a request.

If adverse underwriting decision, provide consumer with specific reasons. If based on credit score, include specifics of no more than four reasons for score. Provide information on how to dispute. May use credit history only in combination with other factors to decline coverage. May not consider absence of history, number of inquiries, total available credit, etc. Consumer may request yearly re-rating. File scoring models with dept. Prohibits an insurer from rerating the policy or consumer when the consumer's marital status changes because of death or divorce. Allows an insurer to consider the last five years of claim history when rating a policy, however a insurer can use a longer claim history for the purpose of providing a discount. Allows insurer to consider the second or any subsequent claims in the last five years to determine whether to issue or renew a policy.

Pennsylvania
No provision
Rhode Island

May not request a credit report without first notifying the insurance applicant. If deny coverage or charge more, must notify consumers that is due to credit report.

May use credit scoring for rating and underwriting only if the insurer demonstrates the predictive nature of the score to the insurance department. If requested by customer, must do new credit score every two years and lower rates if score is better. May not use revised score to raise rates except as noted. Rates may only be changed at time of renewal. List of factors that may not be considered. Reporting agency may not sell data or lists that include information about credit report.

May not decline insurance for a new consumer based solely on the credit score. If use in rating, must demonstrate the statistically predictive nature of the score in the rate filing.

South Carolina

An insurer may use absence of credit as a criterion for underwriting if the insurer presents information satisfactory to the director.

If insurers use lack of a credit score as an underwriting criteria, must provide the department with support.

Must get approval from department before using lack of a credit score as a criterion for underwriting.

Auto insurance: Credit report used as basis for rate classification must be kept on file by the insurer for three years and be available to the applicant. May not refuse to insure, cancel or nonrenew based solely on credit history or credit score. A filing including credit scoring must include justification. Disclose to consumer that insurer may gather and consider credit information.

South Dakota
May not use credit information as the sole rating factor.
Tennessee

Justification for use of credit scoring must be provided in the filing. Credit scoring cannot be the sole basis for determining rates.

May not include ZIP code as a factor. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years. File scoring models with department.

Sets procedures for filing of credit scoring models.

Texas

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

Filing requirements for credit scoring models.

Disclosure statement for consumers on how score is calculated, right to appeal, requirement for actuarial justification. Rate differences due solely to use of credit scoring must be supported by actuarial analysis

Insurer may not use credit scoring that is computed using factors that constitute unfair discrimination. Shall not refuse to renew an insurance policy solely based on credit information. If credit information is used in underwriting or rating, disclose that fact at the time the application is taken. File scoring models with department.

Utah

Home insurance: Insurer that uses credit reports in underwriting must comply with federal Consumer Credit Reporting Act.

Auto insurance: May only use credit information to reduce rates or in conjunction with other factors. Inform consumer of factors used in adverse underwriting decision. May not use credit information to cancel or nonrenew coverage that has been in place 60 days or more or as the primary reason to refuse to issue a new policy.

Vermont
No provision.
Virginia

Any insurer intending to use credit score must file the model prior to their use.

May not include income, gender, race, religion, marital status, ZIP code, nationality, etc. as factors. May not base rates solely on credit score or consider absence of a credit history. Must recalculate credit score after three years.

Auto and fire insurance: Insurers shall not refuse to renew an insurance policy solely based on credit information contained in a consumer report, bearing on an individual’s creditworthiness, credit standing or credit capacity. If credit information is used in part, it shall be based on a consumer report procured within 120 days from effective date of nonrenewal.

Washington

Consumer reporting agency may furnish credit report where the insurer intends to use it for underwriting.

Credit history may not be used to cancel or non-renew insurance. May only be used to deny coverage if combined with other substantive underwriting factors.

Credit history shall not be used to determine insurance rates unless the credit scoring models are filed with the commissioner. May not use certain attributes of credit history in credit scoring model.

Regulation describes standards that apply to insurers that use credit history.

West Virginia

Guidelines for filings containing credit scoring. Data may not be used in unfairly discriminatory manner. May not be sole basis for deciding whether to write coverage. If used for rating, must recheck scores of policyholders after 3 years.

May not decline a policy based solely on adverse credit report.

Auto insurance: Dept. of Motor Vehicles may furnish credit information from its files where an insurer intends to use it for underwriting.

Wisconsin
Can use credit reports but not as the sole reason to refuse, cancel or nonrenew a policy.
Wyoming
Authority to adopt regulation to provide that credit history may not be sole factor and to require disclosures. Protect consumers against unfair discrimination.
Source: National Association of Insurance Commissioners

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