78R2282 PB-F
By: Thompson H.B. No. 265
A BILL TO BE ENTITLED
AN ACT
relating to the use of credit scoring in the underwriting and rating
of personal automobile and residential property insurance.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 5, Insurance Code, is amended by adding
Subchapter Q to read as follows:
SUBCHAPTER Q. USE OF CREDIT SCORING FOR CERTAIN
INSURANCE UNDERWRITING OR RATING
Art. 5.201. PURPOSE. The purpose of this subchapter is to
specify the conditions under which insurers may use credit
information for underwriting or rating personal automobile and
residential property insurance.
Art. 5.202. DEFINITIONS. In this subchapter:
(1) "Adverse action" has the meaning assigned in
relation to insurance by Section 603, Fair Credit Reporting Act (15
U.S.C. Section 1681a), as amended.
(2) "Affiliate" means an entity classified as an
affiliate of an insurer under Section 823.003 of this code.
(3) "Agent" means a person licensed or required to be
licensed as a general property and casualty insurance agent under
Article 21.14 of this code.
(4) "Applicant" means a consumer who applies for an
insurance policy with an insurer.
(5) "Consumer" means an individual.
(6) "Consumer report" and "consumer reporting agency"
have the meanings assigned by Section 603, Fair Credit Reporting
Act (15 U.S.C. Section 1681a), as amended.
(7) "Credit score" means a numerical representation of
the risk presented by an individual that uses attributes of the
individual derived from a consumer report or other consumer or
credit information in a formula to assess risk on an actuarial or
statistical basis.
(8) "Insured" means a consumer who has purchased an
insurance policy from an insurer.
(9) "Insurer" means an insurer authorized to write
property and casualty insurance in this state. The term includes:
(A) a domestic or foreign, stock or mutual, fire
and casualty insurance company;
(B) a Mexican casualty insurance company;
(C) a domestic or foreign Lloyd's plan;
(D) a domestic or foreign reciprocal or
interinsurance exchange;
(E) a county mutual insurance company; and
(F) a farm mutual insurance company.
(10) "Residential property insurance" means insurance
covering a dwelling or the contents of a dwelling, including:
(A) homeowners insurance;
(B) farm and ranch or farm and ranch owners
insurance; and
(C) residential fire and allied lines insurance.
Art. 5.203. APPLICABILITY. This subchapter applies only to
an insurer that:
(1) writes personal automobile insurance coverage or
residential property insurance coverage; and
(2) uses information from consumer reports for
underwriting or rating that coverage.
Art. 5.204. USE OF CREDIT SCORING; DISCLOSURE TO CONSUMERS.
(a) An insurer subject to this subchapter may use credit scoring to
develop rates, rating classifications, or underwriting criteria
regarding lines of insurance subject to this subchapter except as
prohibited by Article 21.21-6 of this code, as added by Chapter 415,
Acts of the 74th Legislature, Regular Session, 1995.
(b) An insurer that uses credit scoring in the underwriting
or rating of insurance subject to this subchapter shall disclose to
each applicant that the applicant's consumer report may be used in
the underwriting or rating of the applicant's policy. The
disclosure must be provided at the time of application and may be
given orally, in writing, or electronically.
(c) If a policy is issued to the applicant, an insurer is not
required to make the disclosure required under Subsection (b) of
this article on any subsequent renewal of the coverage.
(d) An insurer is considered to be in compliance with this
article if the insurer provides the disclosure language to its
agents and directs the agents to provide the information to
consumers.
Art. 5.205. INSURER FILING. (a) On written request from
the department, an insurer shall file with the department
information regarding how the insurer uses consumer reports,
including credit information, credit scoring models, or scores
derived from consumer reports, in the underwriting or rating of
lines of insurance subject to this subchapter.
(b) Information submitted to the department under this
article is confidential information and may not be released by the
department without written authorization by the insurer.
Art. 5.206. PROHIBITED ACTS. (a) An insurer subject to this
subchapter may not:
(1) cancel, nonrenew, or refuse to insure a consumer
based solely on information contained in a consumer report;
(2) use information contained in a consumer report
that has been identified in the consumer report by the consumer
reporting agency as disputed by the consumer and coded as such;
(3) use information contained in a consumer report
that has been identified by the consumer reporting agency as
related to insurance inquiries or non-consumer-initiated inquiries
and coded as such;
(4) use information contained in a consumer report
that has been identified in the consumer report by the consumer
reporting agency as related to medical trade lines and coded as
such; or
(5) disclose an applicant's or an insured's personally
identifiable consumer report information to any nonaffiliated
third party without the written consent of the applicant or
insured.
(b) For purposes of Subsection (a) of this article, offering
to write a policy with substantially identical coverage through an
affiliate does not constitute a refusal to insure or a cancellation
or nonrenewal of insurance coverage.
Art. 5.207. EFFECT OF EXTRAORDINARY EVENTS. (a)
Notwithstanding any other law, an insurer may, on written request
from an applicant or insured, provide reasonable exceptions to the
insurer's rates, rating classifications, or underwriting rules for
a consumer whose credit information has been directly influenced by
a catastrophic illness or injury, the death of a spouse, or another
event of a similar nature. In such a case, the insurer may consider
only credit information not affected by the event or shall assign a
neutral credit score.
(b) An insurer may require reasonable documentation of the
event before granting an exception.
(c) An insurer is not out of compliance with any law or rule
relating to underwriting, rating, or rate filing as a result of
granting an exception under this article.
Art. 5.208. EFFECT OF ABSENCE OF CREDIT HISTORY. An insurer
may not use the absence of a credit history or the inability to
determine an applicant's or insured's credit history as a factor in
underwriting or rating an insurance policy unless the insurer has
statistical, actuarial, or reasonable underwriting information
that is reasonably related to actual or anticipated loss experience
and that shows that the absence of credit history could result in
actual or anticipated loss differences.
Art. 5.209. NOTICE OF ADVERSE ACTION. If an insurer takes
an adverse action with respect to an applicant or insured based in
whole or in part on information contained in a consumer report, the
insurer shall provide to the applicant or insured:
(1) written or electronic notice of the adverse
action;
(2) the name, address, and telephone number of the
consumer reporting agency, including a toll-free number
established by the agency if the agency compiles and maintains
files on consumers on a nationwide basis;
(3) written or electronic notice that the consumer
reporting agency did not make the decision to take the adverse
action and will be unable to provide the applicant or insured the
specific reasons why the adverse action was taken; and
(4) written or electronic notice of the applicant's or
insured's right to:
(A) obtain a free copy of the consumer report
from the consumer reporting agency during the 60-day period after
the date of the notice; and
(B) dispute with the consumer reporting agency
the accuracy or completeness of any information in the consumer
report furnished by the agency.
Art. 5.210. EXPLANATION OF REASONS FOR ADVERSE ACTION. (a)
Not later than the 60th day after the date the notice of adverse
action required under Article 5.209 of this code is sent, an
applicant or insured may request in writing that the insurer
provide a statement of the reasons for the adverse action.
(b) On receipt of a written request from an applicant or
insured, the insurer shall provide a statement of reasons that
identifies the basis for the insurer's decision.
(c) An explanation of the most significant characteristics
in the consumer report that contributed to the insurer's decision
to take the adverse action is sufficient to comply with this
article. A standardized credit explanation provided by the
consumer reporting agency or another similar explanation is also
sufficient to comply with this article.
Art. 5.211. RIGHT TO CORRECT CREDIT INFORMATION ON ISSUED
POLICIES. (a) Not later than the 180th day after the date a notice
of adverse action is sent, an insured may request in writing that
the insurer reevaluate the insurer's action based on corrected
consumer report information from a consumer reporting agency.
(b) On receipt of a written request for reevaluation, an
insurer shall review the corrected consumer report information. If
the reevaluation results in a lower premium charge to the insured,
the insurer shall apply the lower premium retroactively to the
effective date of the current policy term and shall either refund or
credit the amount due to the insured.
(c) The insurer may require reasonable documentation of the
correction from the consumer reporting agency before conducting a
reevaluation under this article.
SECTION 2. Subchapter Q, Chapter 5, Insurance Code, as
added by this Act, applies only to an application for insurance
coverage made, and an insurance policy delivered, issued for
delivery, or renewed, on or after January 1, 2004. An application
for insurance coverage made, or an insurance policy delivered,
issued for delivery, or renewed, before January 1, 2004, is
governed by the law as it existed immediately before the effective
date of this Act, and that law is continued in effect for that
purpose.
SECTION 3. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2003.