NCOIL Credit Score Bill Is Law In 13 States

NCOIL Credit Score Bill Is Law In 13 States

By Daniel Hays

NU Online News Service July 10, 3:06 p.m. EDT?Gov. Rod R. Blagojevich yesterday made Illinois the thirteenth state to enact a measure that follows an industry-supported model law allowing insurers to rate customers according to their credit history.

The National Association of Independent Insurers in Des Plaines, Ill., which has been tracking the issue, said the measure signed by Gov. Blagojevich, HB 1640, follows the National Conference of Insurance Legislators (NCOIL) Insurance Scoring Model Act.

A spokesperson for Mr. Blagojevich said the new law, regulating credit history use for personal insurance underwriting and rating, will take effect there on Oct. 1.

On the same day that the Illinois law was signed, the California Assembly Insurance Committee defeated a measure strongly opposed by insurers that would have banned credit scoring for homeowners insurance.

NAII said insurers' legislative efforts, in addition to the NCOIL model, were helped by two studies that NAII said show "an irrefutable link between credit-based insurance scores and risk of loss."

"The most significant development in the insurance scoring debate in 2003 has been the legislative support given to the NCOIL model act," said Robert Zeman, NAII senior vice president of state government affairs.

NAII said that, on Monday, Louisiana became the twelfth state to enact legislation based on the provisions of the NCOIL model. In addition, insurance commissioners in Alabama and Wyoming are considering regulations that incorporate the NCOIL approach to insurance scores, NAII said.

Over 40 states considered insurance scoring legislation this year, by NAII's count. The group said that to date, laws have been enacted in 18 states. States enacting legislation based on the NCOIL model include Arkansas, Florida, Georgia, Indiana, Kansas, Louisiana, Maine, Nebraska, Nevada, North Dakota, Oklahoma and Texas.

"The NCOIL model served as a viable starting point for discussion and compromise as it offered lawmakers an alternative to legislative bans. While pockets of staunch opposition persist, the major developments of this year provide ample support for the use of this highly predictive tool," said Mr. Zeman.

The model must be tailored to fit the needs of insurers in each individual state and prohibits insurers from using credit information as the sole basis for denying, canceling or non-renewing a policy or increasing rates, NAII noted.

The model also provides insurers with three options regarding the treatment of consumers with very little or no credit history. This information can be used if the insurer is able to demonstrate to the insurance commissioner that the absence of credit information is related to risk of loss.

The model also contains a provision requiring insurers to file their scoring models with state regulators. Such filings are considered trade secrets.

At the annual renewal of a policy, a consumer has the right to request that the insurer rewrite his or her insurance policy based on the consumer's current insurance score, unless the insurer treats the consumer in a manner as otherwise approved by the commissioner.

An insurer that takes an adverse action based on credit information must provide the consumer with reasons for the adverse action.

Six states--Alaska, Arizona, Colorado, North Carolina, Virginia, and Wyoming--passed bills that deviated from the NCOIL model. Of these states, only Alaska and Virginia passed legislation that is more restrictive than the NCOIL model.