A Florida administrative law judge ruled yesterday that the state's Office of Insurance Regulation (OIR) does not have the authority to begin enforcing a rule governing insurers' use of credit information when that rule is still under administrative challenge.

The judge's order prevents OIR from enforcement of the rule, which was scheduled to go into effect last Friday requiring insurers to make filings providing proof that use of credit scores does not have a disparate impact on a group of people defined by race, color, religion, gender or age.

The filings must also include a complete description of the methodology utilized when using credit information and what impact having little or no credit history would have on policyholders, according to Florida Insurance Commissioner Kevin McCarty.

The rule in question implements the 2003 Florida law authorizing the use of customer's credit background information in personal lines underwriting. The law, for the most part, was based on a model approved by the National Conference of Insurance Legislators.

But insurance industry representatives contend that some provisions of the rule, particularly those aimed at the alleged disproportionate impact of credit scoring on the poor and minorities, goes beyond the scope of the measure approved by Florida lawmakers.

The challenge to the substance of the credit rule, filed by the American Insurance Association, National Association of Mutual Insurance Companies, Property Casualty Insurers Association of America, and Florida Insurance Council (FIC), will continue, industry representatives said.

“The order confirms FIC's position that the memorandum is itself a rule as defined in the Administrative Law Code of Florida, and as such, must be promulgated as a rule in order to be enforceable,” said FIC President Guy Marvin.

The order results from the industry's challenge to the OIR's January Informational Memorandum announcing that enforcement of the rule would commence Sept. 1.

In Tuesday's order, the administrative law judge found that the informational memorandum, in order to be enforceable, must be promulgated as a rule, which it was not. Thus, the rule cannot be enforced until the underlying legal challenge of the rule itself is resolved. A decision on the rule is expected by the end of the year.

American Insurance Association spokeswoman Julie Pulliam said that among the objections the industry has to the Florida rule is the requirement to demonstrate that credit scoring has no “disproportionate effect” on consumers. “Insurers do not even collect the kind of demographic data that would be necessary to prove no 'disproportionate effect,'” Ms. Pulliam noted.

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