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By: West S.B. No. 91
A BILL TO BE ENTITLED
AN ACT
relating to credit scoring in underwriting certain consumer lines
of insurance coverage; providing a penalty.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter E, Chapter 21, Insurance Code, is
amended by adding Article 21.49-2R to read as follows:
Art. 21.49-2R. PROHIBITION ON USE OF UNDERWRITING BASED ON
CREDIT SCORING
Sec. 1. DEFINITIONS. In this article:
(1) "Applicant for insurance coverage" includes an
applicant for new coverage and a policyholder renewing coverage.
(2) "Consumer reporting agency" has the meaning
assigned by Section 603, Fair Credit Reporting Act (15 U.S.C.
Section 1681a), as amended.
(3) "Credit report" means a written or electronic
communication of any information by a consumer reporting agency
that:
(A) bears on an individual's creditworthiness,
credit standing, or credit capacity; and
(B) is used or collected in whole or in part to
serve as a factor in determining eligibility for insurance
coverage.
(4) "Credit score" means a numerical representation of
the risk presented by an individual that uses attributes of the
individual derived from a credit report or other consumer or credit
information in a formula to assess risk on an actuarial or
statistical basis.
(5) "Credit scoring entity" means a consumer reporting
agency or other entity that creates, compiles, or provides credit
scores.
(6) "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.
(7) "Underwriting" means the selection of the risk
that will be assumed by an insurer, and specifically the decision
whether to accept, deny, renew, nonrenew, reduce, or increase the
amount of benefits payable under an insurance policy or the types of
coverages available under an insurance policy.
Sec. 2. APPLICATION. This article applies only to:
(1) a personal automobile insurance policy;
(2) a homeowners insurance policy;
(3) a farm and ranch or farm and ranch owners insurance
policy; or
(4) a residential fire and allied lines insurance
policy.
Sec. 3. PROHIBITION ON CERTAIN USE OF CREDIT SCORING BY
INSURERS. With respect to a line of insurance subject to this
article, an insurer may not:
(1) refuse to underwrite, cancel, or refuse to renew a
risk based, in whole or in part, on the credit history or credit
score of an applicant for insurance coverage;
(2) rate a risk based, in whole or in part, on the
credit history or credit score of an applicant for insurance
coverage in any manner, including:
(A) the provision or removal of a discount;
(B) assignment of the applicant for insurance
coverage to a rating tier; or
(C) placement of an applicant for insurance
coverage with an affiliated company; or
(3) require a particular payment plan based, in whole
or in part, on the credit history or credit score of the applicant
for insurance coverage.
Sec. 4. RULES. The commissioner may adopt rules as
necessary to implement this article.
Sec. 5. PENALTY. An insurer who violates this article
commits an unfair practice in violation of Article 21.21 of this
code.
SECTION 2. Subchapter E, Chapter 21, Insurance Code, is
amended by adding Article 21.79C to read as follows:
Art. 21.79C. INTERIM STUDY REGARDING USE OF INSURANCE
CREDIT SCORES
Sec. 1. DEFINITIONS. In this article:
(1) "Consumer reporting agency" has the meaning
assigned by Section 603, Fair Credit Reporting Act (15 U.S.C.
Section 1681a), as amended.
(2) "Credit report" means a written or electronic
communication of any information by a consumer reporting agency
that:
(A) bears on an individual's creditworthiness,
credit standing, or credit capacity; and
(B) is used or collected in whole or in part to
serve as a factor in determining eligibility for insurance
coverage.
(3) "Credit score" means a numerical representation of
the risk presented by an individual that uses attributes of the
individual derived from a credit report or other consumer or credit
information in a formula to assess risk on an actuarial or
statistical basis.
(4) "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.
(5) "Underwriting" means the selection of the risk
that will be assumed by an insurer, and specifically the decision
whether to accept, deny, renew, nonrenew, reduce, or increase the
amount of benefits payable under an insurance policy or the types of
coverages available under an insurance policy.
Sec. 2. INTERIM STUDY; REPORT. (a) The department shall
conduct an interim study regarding the use before January 1, 2004,
of credit scores by insurers. The study must analyze whether the
use of credit scoring in underwriting insurance coverage had an
adverse impact on any demographic group defined by race or
socioeconomic status.
(b) In conducting the study, the commissioner shall consult
with representatives of:
(1) consumer organizations;
(2) insurers and other insurance organizations;
(3) consumer reporting agencies; and
(4) any other persons determined necessary by the
commissioner to assist the department in conducting the study.
(c) The department shall prepare a written report to the
legislature regarding the findings of the interim study. The
report may include any recommendations of the department regarding
the use of credit scores by insurers.
(d) Not later than September 1, 2004, the department shall
deliver copies of the report to the governor, the lieutenant
governor, the speaker of the house of representatives, and the
members of the 78th Legislature.
(e) This article expires September 1, 2005.
SECTION 3. Article 21.49-2R, 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 4. This Act takes effect September 1, 2003.