78R3730 PB-D

By:  Eiland                                                       H.B. No. 920


A BILL TO BE ENTITLED
AN ACT
relating to the use of credit scoring in certain personal lines of insurance. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Subchapter E, Chapter 21, Insurance Code, is amended by adding Article 21.49-2U to read as follows: Art. 21.49-2U. USE OF CREDIT SCORING IN CERTAIN PERSONAL LINES OF INSURANCE Sec. 1. DEFINITIONS. In this article: (1) "Adverse action" means an action taken by an insurer in connection with the underwriting of personal insurance for a consumer that results in the denial of coverage, cancellation or nonrenewal of coverage, an increase in any charge for coverage, or a reduction in the amount of benefits payable or other unfavorable change in the terms of coverage of a policy of personal insurance. (2) "Affiliate" has the meaning described by Section 823.003 of this code. (3) "Applicant for insurance coverage" means an individual who has applied to an insurer for coverage under a personal insurance policy. (4) "Consumer" means an individual whose credit information is used or whose insurance score is computed in the underwriting or rating of a personal insurance policy. The term includes an applicant for insurance coverage. (5) "Consumer reporting agency" means any person that, for monetary fees or dues or on a cooperative nonprofit basis, regularly engages in the practice of assembling or evaluating consumer credit information or other information on 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. The term does not include information that is not credit-related, regardless of whether that information is contained in a credit report or in an application for insurance coverage or is used to compute an insurance score. (7) "Credit report" means any written, oral, or other communication of information by a consumer reporting agency that: (A) bears on a consumer's creditworthiness, credit standing, or credit capacity; and (B) is used or expected to be used or collected in whole or in part to serve as a factor to determine personal insurance premiums, eligibility for coverage, or tier placement. (8) "Insurance score" means a number or rating derived from an algorithm, computer application, model, or other process that is based on credit information and used to predict the future insurance loss exposure of a consumer. (9) "Insurer" means an insurer authorized to write property and casualty insurance in this state, including: (A) a county mutual insurance company; (B) a farm mutual insurance company; (C) a Lloyd's plan; and (D) a reciprocal or interinsurance exchange. (10) "Personal insurance" means: (A) a personal automobile insurance policy; (B) a homeowners or farm and ranch owners insurance policy; (C) a farm and ranch or residential fire and allied lines insurance policy; or (D) a noncommercial insurance policy covering a boat, personal watercraft, snowmobile, or recreational vehicle. Sec. 2. APPLICATION. This article applies to an insurer that writes personal insurance that is individually underwritten for personal, family, or household use. Sec. 3. PROHIBITED USE OF CREDIT INFORMATION. (a) An insurer may not: (1) use an insurance score that is computed using the income, gender, address, zip code, 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; (3) base an insured's renewal rates for personal insurance on credit information; (4) take an adverse action against a consumer solely because the consumer does not have a credit card account without consideration of any other applicable factor independent of credit information; or (5) take an adverse action against a consumer based on credit information, unless the insurer obtains and uses a credit report issued, or an insurance score computed, not later than the 90th day before the date on which the policy is first written. (b) An insurer may not consider an absence of credit information or an inability to compute an insurance score in underwriting or rating personal insurance, unless the insurer: (1) treats the consumer in a manner otherwise approved by the commissioner, if the insurer presents information that such an absence or inability relates to increased risk for the insurer; (2) treats the consumer as if the applicant for insurance coverage or insured had neutral credit information, as defined by the insurer; or (3) excludes the use of credit information as a factor in underwriting and uses only other underwriting criteria. Sec. 4. NEGATIVE FACTORS. (a) An insurer may not use any of the following as a negative factor in any insurance scoring methodology or in reviewing credit information to underwrite or rate a policy of personal insurance: (1) a credit inquiry that is not initiated by the consumer; (2) an inquiry relating to insurance coverage, if so identified on a consumer's credit report; (3) a collection account with a medical industry code, if so identified on the consumer's credit report; or (4) unless only one inquiry is considered, multiple lender inquiries, if coded by the consumer reporting agency on the consumer's credit report as: (A) from the home mortgage industry or the motor vehicle lending industry; and (B) made within 30 days of a prior inquiry. (b) The prohibition under Subsection (a)(1) of this section does not apply to an inquiry initiated at the consumer's request. Sec. 5. DISPUTE RESOLUTION; ERROR CORRECTION. (a) If it is determined through the dispute resolution process established under the Fair Credit Reporting Act (15 U.S.C. Section 1681i(a)(5)), as amended, that the credit information of a current insured was inaccurate or incomplete or could not be verified and 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 insured not later than the 30th day after the date of receipt of the notice. (b) After re-underwriting or re-rating the insured, the insurer shall make any adjustments necessary, consistent with the insurer's underwriting and rating guidelines. If an insurer determines that the insured has overpaid premium, the insurer shall refund to the insured the amount of overpayment computed retroactively to the shorter of: (1) the last 12 months of coverage; or (2) the actual policy period. Sec. 6. INITIAL DISCLOSURE. (a) If an insurer uses credit information in underwriting or rating a policy of personal insurance, the insurer or the insurer's agent shall disclose, either on the insurance application or at the time the insurance application is taken, that the insurer may obtain credit information in connection with the application. (b) The required disclosure must be substantially similar to the sample provided by Subsection (c) of this section and must be provided to the applicant for insurance coverage in writing or in the same medium used by the insurer for the insurance application. (c) Use of the following sample 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." (d) The disclosure statement must contain a checkoff box or other analogous provision: (1) through which the applicant indicates that the applicant has received and read the disclosure statement; and (2) that the applicant is required to return to the insurer before the insurance application is processed. (e) The insurer is not required to provide the disclosure statement to an insured if the insurer has previously provided a disclosure statement to that insured. Sec. 7. ADVERSE ACTION NOTIFICATION. (a) If an insurer takes an adverse action based on credit information, the insurer must: (1) notify the consumer in accordance with the requirements of the Fair Credit Reporting Act (15 U.S.C. Section 1681m(a)), as amended, that an adverse action has been taken; and (2) include in the notification to the consumer an explanation of the reasons for the adverse action in clear and specific language sufficient to identify the basis for the insurer's decision to take the adverse action. (b) The notice required under this section must include a description of up to four factors that constitute the primary bases of the adverse action. The use by the insurer of generalized terms such as "poor credit history," "poor credit rating," or "poor insurance score" does not meet the requirements of this section. Sec. 8. MANDATED FILING WITH DEPARTMENT. (a) An insurer that uses insurance scores to underwrite and rate risks shall file the insurer's scoring models or other scoring processes with the department. Another entity may file scoring models on behalf of an insurer. A filing that includes insurance scoring must include loss experience justifying the use of credit information. (b) A filing relating to credit information is a trade secret and is confidential for purposes of Chapter 552, Government Code. Sec. 9. INDEMNIFICATION. (a) An insurer shall indemnify, defend, and hold its agent harmless from and against all liability, fees, and costs that arise out of or relate to the actions, errors, or omissions of an agent who obtains or uses credit information or insurance scores for the insurer if the agent follows the instructions of or procedures established by the insurer and complies with any applicable law or rule. (b) This section may not be construed to establish a cause of action that does not exist in the absence of this section. Sec. 10. SALE OF POLICY TERM INFORMATION BY CONSUMER REPORTING AGENCY PROHIBITED. (a) A consumer reporting agency may not provide or sell data or lists that include any information that, in whole or in part, was submitted in conjunction with an insurance inquiry about a consumer's credit information or a request for a credit report or insurance score, including: (1) the expiration dates of an insurance policy or any other information that may identify periods during which a consumer's insurance may expire; and (2) the terms and conditions of the consumer's insurance coverage. (b) The restriction under Subsection (a) of this section does not apply to data or lists that the consumer reporting agency provides to: (1) the insurance agent from whom information was received; (2) the insurer on whose behalf the agent acted; or (3) that insurer's affiliates. (c) This section may not be construed to restrict the ability of an insurer to obtain a claims history report or a report regarding a motor vehicle. Sec. 11. RULES. The commissioner may adopt rules as necessary to implement this article. SECTION 2. Article 21.49-2U, Insurance Code, as added by this Act, applies only to an insurance policy delivered, issued for delivery, or renewed on or after January 1, 2004. A 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 September 1, 2003.