Use of Credit for Rating and Underwriting of Homeowners and Personal Motor Vehicle Insurance

Department of Business Regulation

1511 Pontiac Avenue

Cranston, RI 02920

Insurance Bulletin Number 2002-16

Use of Credit for Rating and Underwriting

of Homeowners and Personal Motor Vehicle Insurance

The Rhode Island General Assembly has found that if insurance scoring is to continue to

be allowed, it must be done in a fair and equitable manner for all Rhode Islanders. An

“insurance score” as used in this Bulletin means a number or rating that is derived from

an algorithm, computer application, model or other process that is based in whole or in

part on credit history. Insurers are required to educate consumers as to the connection

between credit history, insurance underwriting and loss experience. In addition, insurers

should advise consumers on how to obtain a copy of his or her credit report as well as

information on how a consumer can improve their insurance score. While the law does

not require insurers to submit the educational tools utilized (i.e., pamphlets, brochures,

etc.) to the Department, the Department reserves its right to review such material during a

market conduct review or internal complaint handling process.

Pursuant to R.I. Gen. Laws §§ 27-6-53 and 27-9-56, which become effective on January

1, 2003, insurers may use insurance scoring for rating and underwriting of homeowners

insurance and personal motor vehicle insurance only under the following conditions:

rtment, the Department reserves its right to review such material during a

market conduct review or internal complaint handling process.

Pursuant to R.I. Gen. Laws §§ 27-6-53 and 27-9-56, which become effective on January

1, 2003, insurers may use insurance scoring for rating and underwriting of homeowners

insurance and personal motor vehicle insurance only under the following conditions:

(1) The insurer demonstrates the predictive nature of their insurance score to the

insurance division.

Department note: Any insurer submitting a filing to the Department on or after January 1,

2003 must demonstrate the predictive nature of their insurance scoring process if credit is

used by the insurer in the rating or underwriting process. The Department has updated the

Rate Procedural Information Form to include the credit reporting requirements. All filings

submitted to the Department must be accompanied by the updated Rhode Island Rate

Filing General Informational and Procedural Forms.

(2) An insurer shall, once every two (2) years if requested by an existing customer,

obtain an updated insurance score for the customer. If, after obtaining the

insurance score, the customer has improved his, her or its credit rating, the user

of the information shall afford the customer any decrease in rates that are

available due to the improved rating. The user may not increase the rate of an

existing customer based solely on a worsening in the customer’s insurance

score unless: (i) the worsening is due to a bankruptcy, tax lien, garnishment,

foreclosure or judgment; or (ii) if a subsequent insurance score no sooner than

six (6) months later confirms the worsening in score. Should an existing

hat are

available due to the improved rating. The user may not increase the rate of an

existing customer based solely on a worsening in the customer’s insurance

score unless: (i) the worsening is due to a bankruptcy, tax lien, garnishment,

foreclosure or judgment; or (ii) if a subsequent insurance score no sooner than

six (6) months later confirms the worsening in score. Should an existing

customer's score change as the result of an updated credit report, the decrease or

increase in rates must be done at renewal subject to conditions established

herein.

Department note: The Department has concluded that the beginning date for updating

insurance scores, if requested by an existing customer, would be two (2) years from the last

insurance score obtained for the customer.

(3) An insurer shall not decline insurance for a new customer based solely on an

insurance score, or absence of an insurance score; and an insurer shall not

cancel, or nonrenew or increase the rate of an existing customer based solely on

a worsening in a customer’s insurance score unless; (i) the worsening is due to

a bankruptcy, tax lien, garnishment, foreclosure, or judgment; or (ii) if a

subsequent insurance score no sooner than six (6) months later confirms the

worsening in score. Should an existing customer's score change as the result of

an updated credit report, the decrease or increase in rates must be done at

renewal subject to conditions established herein.

Department note: The Department is in the process of amending Insurance Regulation 16

to incorporate the above conditions for cancellation and nonrenewal.

) months later confirms the

worsening in score. Should an existing customer's score change as the result of

an updated credit report, the decrease or increase in rates must be done at

renewal subject to conditions established herein.

Department note: The Department is in the process of amending Insurance Regulation 16

to incorporate the above conditions for cancellation and nonrenewal.

(4) No insurer is obligated to obtain a current credit report or insurance score for an

insured if: the insured is in the most favorably-priced tier of the insurer, within

a group of affiliated insurers, or credit was not used for such insured when the

policy was initially written. However, the insurer shall have the discretion to

use credit for such insured upon renewal, if consistent with it’s underwriting

guidelines. The user may not increase the rate of an existing customer based

solely on a worsening in the customer’s insurance score unless: (i) the

worsening is due to bankruptcy, tax lien, garnishment, foreclosure or judgment;

or (ii) if a subsequent insurance score no sooner than six (6) months later

confirms the worsening in score. Should an existing customer's score change as

the result of an updated credit report, the decrease or increase in rates must be

done at renewal subject to conditions established herein.

(5) If a credit bureau determines that disputed information is inaccurate or incorrect

and that information was used in determining an insurance score which resulted

in a denial, cancellation or nonrenewal of or higher premiums of less favorable

policy terms for a consumer, the insurer shall, within thirty (30) days of

receiving notice of correction, reissue or re-rate the policy by refunding the

amount of the overpayment of premium based on the corrected insurance score

retroactive to the shorter of the last twelve (12) months of coverage or the

actual period of coverage

ellation or nonrenewal of or higher premiums of less favorable

policy terms for a consumer, the insurer shall, within thirty (30) days of

receiving notice of correction, reissue or re-rate the policy by refunding the

amount of the overpayment of premium based on the corrected insurance score

retroactive to the shorter of the last twelve (12) months of coverage or the

actual period of coverage. An "insurance score" as used in this section shall be

defined as a number or rating that is derived from an algorithm, computer

application, model or other process that is based in whole or in part on credit

history.

Department note: The Department is in the process of amending Insurance Regulation 16

to incorporate the above conditions for cancellation and nonrenewal.

(6) Effective January 4, 2004: Notwithstanding the above, an insurer authorized to

do business in Rhode Island that uses credit information to underwrite or rate

risks, shall not use the following as a negative factor in any insurance scoring

methodology or in reviewing credit information for the purpose of underwriting

or rating a policy of personal insurance:

(1) Credit inquiries not initiated by the consumer or inquiries requested by

the consumer for his or her own credit information;

(2) Inquiries relating to insurance coverage, if so identified on a consumer's

credit report;

(3) Collection accounts with a medical industry code, if so identified on the

consumer's credit report;

(4) Multiple lender inquiries, if coded by the consumer reporting agency on

the consumer's credit report as being from the home mortgage industry and

made within thirty (30) days of one another, unless only one inquiry is

considered;

(5) Multiple lender inquiries, if coded by the consumer reporting agency on

the consumer's credit report as being from the automobile lending industry

and made within thirty (30) days of one another, unless only one inquiry is

considered.

onsumer's credit report as being from the home mortgage industry and

made within thirty (30) days of one another, unless only one inquiry is

considered;

(5) Multiple lender inquiries, if coded by the consumer reporting agency on

the consumer's credit report as being from the automobile lending industry

and made within thirty (30) days of one another, unless only one inquiry is

considered.

(d) No consumer reporting agency shall 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. Such information

includes, but is not limited to, the expiration dates of an insurance policy or

any other information that may identify time periods during which a

consumer's insurance may expire and the terms and conditions of the

consumer's insurance coverage.

(e) The restrictions provided in subsection (d) of this section do not apply to

data or lists the consumer reporting agency supplies to the insurance

[agent/producer] from whom information was received, the insurer on who's

behalf such [agent/producer] acted, or such insurer's affiliates or holding

companies.

(f) Nothing in this section shall be construed to restrict any insurer from

being able to obtain a claims history report or a motor vehicle report.

In addition to the above requirements, R.I. Gen. Laws § 6-13.1-21 et seq. mandates certain

disclosure requirements for the use of credit. Copies of insurance statutes are accessible at:

http://www.rilin.state.ri.us/Statutes/Statutes.html

Joseph Torti III

Associate Director and Superintendent of Insurance

March 31, 2005