By: Smithee H.B. No. 2467
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, cancellation or
nonrenewal of coverage, or offer and acceptance by a consumer of a
policy form, rate or deductible other than one specifically applied
for by a consumer. Adverse does not include:
(a) actions by an insurer using credit scoring
that affects consumers of the insurer equally or produces a
substantially similar result, or
(b) multiple price quotes offering policy forms,
rates, or deductibles from one or more insurers or agents.
(2) "Agents" means a person licensed or required to be
licensed as a general property and casualty insurance agent under
Article 21.14 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) "Commissioner" means the Commissioner of
Insurance.
(5) "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.
(6) "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.
(7) "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.
(8) "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.
(9) "Credit 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.
(10) "Department" means the Texas Department of
Insurance.
(11) "Insurer" means an insurance company, reciprocal
or interinsurance exchange, mutual, capital stock company, county
mutual insurance company, association, Lloyd's plan company, or
other entity writing residential property insurance in the state.
The term includes an affiliate as described by Section 823.003(a)
of this code if that affiliate is writing residential property
insurance in the state. The term does not include the Texas
Windstorm Insurance Association created and operated under Article
21.49 of this code or the FAIR Plan Association created and operated
under Article 21.49A of this code.
(12) "Personal insurance" means:
(A) a personal automobile insurance policy;
(B) a homeowners or farm and ranch owners
insurance policy;
(C) 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 a credit score that is computed using unfair
discrimination factors prohibited by Article 21.21-6 of this code,
as added by Chapter 415, Acts of the 74th Legislature, Regular
Session, 1995;
(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) 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.
(b) 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:
(1) 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;
(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 credit 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.
Sec. 5. EFFECT OF EXTRAORDINARY EVENTS. (a)
Notwithstanding any other law, an insurer shall on written request
from an applicant or insured, provide reasonable exceptions to the
insurser'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.
Sec. 6. 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 the insured the amount of overpayment.
Sec. 7. DISCLOSURE TO CONSUMERS FOR THE USE OF CREDIT
SCORING; (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 by the
insurer or agent and may be given orally, in writing, or
electronically.
(c) If a policy is issued to the applicant, an insurer or
agent is not required to make the disclosure required under
Subsection (b) of this article on any subsequent renewal of the
coverage.
(d) 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."
Sec. 8. NOTICE OF ADVERSE ACTION. (a) 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
and reasons for 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.
(b) The use by the insurer of generalized terms such as
"poor credit history," "poor credit rating," or "poor insurance
score" as the reason for adverse action shall not be sufficient
notice of adverse action under this section.
Sec. 9. 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. 10. 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. 11. 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 credit 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. 12. RULES. The commissioner may adopt rules as
necessary to implement this article.
Sec. 13. REPORT. (a) The commissioner shall submit a
report to the governor, the lieutenant governor, the speaker of the
house of representatives, and the members of the 79th Legislature
on the information collected from the filings required under this
article and other information obtained by the Department on the use
of credit by insurers. The report shall be submitted before January
1, 2005.
(b) The report required under this section shall provide the
following information:
(1) a summary regarding the use of credit information,
credit reports, and credit scores by insurers, presented in a
manner that protects the identity of individual insurers and
consumers;
(2) practices and the effect of different credit
models presented in a manner that protects the identity of
individual insurers and consumers;
(3) number of consumer complaints submitted to the
Department regarding the use of credit or adverse action against a
consumer based on the use of credit.
(4) favorable or adverse effects on consumers based on
the use of credit scoring including the number of consumers
receiving lower or higher premiums;
(5) any disproportionate or adverse impact on any
class of individuals including but not limited to income, race, or
ethnicity resulting from the use of credit;
(6) recommendations from the Department to the
Legislature regarding the use of credit, and
(7) other information deemed necessary by the
Commissioner to include in the report.
Sec. 14. SEVERABILITY. If any section, paragraph,
sentence, clause, phrase, or any part of this Act passed is declared
invalid due to an interpretation of or a future change in the
federal Fair Credit Reporting Act, the remaining sections,
paragraphs, sentences, clauses, phrases, or parts thereof shall be
in no manner affected thereby but shall remain in full force and
effect.
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.