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.