Credit Scoring in New York A Presentation by the Independent Insurance Agents & Brokers of New York

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1 Credit Scoring in New York A Presentation by the Independent Insurance Agents & Brokers of New York

2 Background Why Do Insurers Check Credit Scores? Insurers say that credit history helps them to assess risk Statistics show that people with poor credit histories tend to make larger and more frequent insurance claims

3 Background Why Do Some Object To Insurers Using Credit Scores? No apparent relationship between driving ability and ability to pay bills on time Opponents argue that credit scoring could discriminate against minorities and low- income groups

4 Recent Events New York Chapter 215 of the Laws of 2004 Created N.Y. Insurance Law Article 28 Based on National Conference of Insurance Legislators (NCOIL) model law Effective April 23, 2005 N.Y. Insurance Dept. Regulation 182 Implements Chapter 215 Issued Feb. 17, 2005

5 Article 28 Regulation 182 How Can Insurers Use Credit Scores? Insurers cannot use credit scores calculated using: Income Ethnic group Gender Religion Address Marital status ZIP code Nationality

6 How Can Insurers Use Credit Insurers Cannot Scores? Deny an applicant a personal lines policy solely because of credit information Must consider other underwriting characteristics Can offer coverage through an affiliate or a different tier based on credit score Cancel, nonrenew,, or increase renewal premium due to credit score Can still base action on other underwriting factors

7 How Can Insurers Use Credit Scores? Insurers cannot take an adverse action against a consumer solely because he/she has no credit card account Adverse action: : Denial or cancellation of, increase in premium for, or reduction or other adverse or unfavorable change in terms or amount of insurance existing or applied for Can take adverse action if other underwriting factors warrant Insurers can take adverse action only if based on credit report issued or score calculated within 90 days of the date policy was first written

8 How Can Insurers Use Credit Scores? If insurer cannot find credit information or cannot calculate a credit score, it must: Consider the consumer to have neutral credit information, Disregard credit information, or Treat the consumer in another way approved by the NY Superintendent of Insurance Must have information showing that the absence of information relates to the insurer s risk

9 How Can Insurers Use Credit Scores? Insurers must re-rate rate and re-underwrite policy at least once every 36 months based on current credit report or credit score Only on request of insured or insured s agent Cannot increase premium based on new score Not required to do more than once per 36 months Can do more often to reduce premium Insurer doesn t have to do this if: Insured is in the best tier, or Insurer didn t consider credit when policy was first written

10 How Can Insurers Use Credit Scores? Insurers cannot penalize applicant for Credit checks not initiated by consumer Consumer s check on his/her own credit report Credit checks by insurers or agents Debts for health care expenses Multiple car loan lender inquiries within 30 day period Insurer may consider them as one inquiry

11 What If the Report Has Errors? Insurer must: Re-underwrite and re-rate rate policy within 30 days of receiving notice that a credit report was incomplete or inaccurate Make adjustments consistent with its underwriting and rating guidelines Refund overpaid premiums for the last 36 months of coverage the insurer provided

12 Disclosure To Consumers Insurers who use credit information in underwriting and rating must disclose that to consumers Applies to both new and renewal policies Disclosure must be in separate written document Need not be mailed separately Disclosure must Inform consumer that the company may obtain credit information in connection with application or renewal Explain what credit scoring is List typical items relative to a consumer s credit history that may affect the score Give the name of the consumer reporting agency that provides the data

13 Disclosure To Consumers If application is taken over the phone, insurer must Send the notice as previously described, or Orally notify the consumer that the insurer may obtain credit information and follow up with written notice if a policy is issued

14 Adverse Action Notice Insurer must Notify consumer if it takes an adverse action based on the credit report Give clear and specific reasons for adverse action Including up to 4 factors that were primary influences Cannot use vague descriptions such as poor credit history Can use standardized credit explanations provided by consumer reporting agencies

15 Filing Insurers that use credit scoring must file scoring models with the Insurance Dept. Must file revisions within 45 days 3 rd party may file models on behalf of insurers Filing may include loss experience Filings are confidential Insurance Dept. may not disclose them in court or administrative proceedings

16 Sale of Information Consumer reporting agencies may not sell or provide data that includes information that was submitted with an insurance inquiry Ex: Expiration dates Does not apply to data given to agent, broker, or insurer who gave the information to the agency Does not restrict insurers ability to obtain claim histories and MVRs

17 Indemnification Insurers must indemnify & hold harmless agents from liability, fees & costs arising from actions, errors & omissions of agent resulting from obtaining or using credit information Agent must Follow insurer s procedures Work within authority provided by insurer Follow applicable laws and regulations

18 Summary For more information, call or e Tim Dodge, Director of Research extension 229 tdodge@iiabny.org Insurance Information Institute NCOILetter, December 2002