Current through all regulations passed and filed through September 16, 2024
(A) Authority
This rule is issued pursuant to section
3901.041 of the Revised Code
which provides that the superintendent of insurance shall adopt, amend, and
rescind rules and make adjudications, necessary to discharge the
superintendent's duties and exercise the superintendent's powers, including,
but not limited to, the superintendent's duties and powers under Chapters 1751.
and 1753. and Title XXXIX of the Revised Code, subject to Chapter 119. of the
Revised Code.
Sections
3901.20 and
3901.21 of the Revised Code
prohibit unfair or deceptive practices in the business of insurance and define
certain acts or practices as unfair or deceptive. Section
3901.21 also provides that the
enumeration of specific unfair or deceptive acts or practices in the business
of insurance is not exclusive or restrictive, or intended to limit the powers
of the superintendent of insurance to adopt rules to implement section
3901.21 or to take action under
other sections of the Revised Code.
(B) Purpose
The purpose of this rule is to clearly define certain unfair
practices and to set forth standards with respect to insurers' and agents' use
of credit history and credit scores in connection with underwriting and rating
personal lines coverage.
(C) Scope
This rule applies only to personal lines coverage as defined in
paragraph (D)(6) of this rule.
(D) Definitions
As used in this rule:
(1) "Adverse action" has the same meaning as
defined in the Fair Credit Reporting Act,
15 U.S.C.
1681 et seq. (1998), and includes a denial or
cancellation of, an increase in any charge for, or a reduction or other adverse
or unfavorable change in the terms of coverage or amount of, any insurance,
existing or applied for, in connection with the underwriting or rating of
insurance. Issuance of a policy at a rate higher than that which the consumer
would have received if the consumer's credit history had not been taken into
account is an adverse action.
(2)
"Consumer" means any insured or applicant for personal lines coverage.
(3) "Credit history" means any
written, oral, or other communication of any information bearing on a
consumer's creditworthiness, credit standing, or credit capacity that is used
or expected to be used, or collected in whole or in part, for the purpose of
serving as a factor in determining rates, placement within a tier or with an
affiliated company, or eligibility for coverage.
(4) "Credit score" 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.
(5) "Insurance score" and "credit based
insurance score" have the same meaning: a number or rating that is derived from
an algorithm, computer application, a model or other process that is based in
whole or in part on a credit score or credit history, for the purpose of
predicting the future insurance loss exposure of a consumer (that is, any
insured or applicant).
(6)
"Personal lines" means a policy of property and casualty insurance issued to a
natural person primarily for personal or family protection for personal
automobile, homeowner's, tenant's, mobile-homeowner's, non-commercial dwelling
fire or personal umbrella coverage.
(7) "Consumer reporting agency" means any
person which, for monetary fees, dues, or on a cooperative nonprofit basis,
regularly engages in whole or in part in the practice of assembling or
evaluating consumer credit information or other information on consumers for
purposes of furnishing such information to third parties.
(E) Credit cannot be the sole underwriting or
rating factor
Credit history or a credit score or any aspect thereof, either
individually or collectively, may not be used without consideration of any
other applicable underwriting or rating factor as the sole basis for:
(1) Any underwriting decision;
(2) Any total premium determination; or
(3) Any adverse action.
This paragraph does not prohibit an insurer from raising a
premium rate at renewal based on a change in credit history, in a credit score,
or in the actuarial indications for a particular credit history or credit score
if other non-credit related factors are also considered in the total premium
determination.
(F) Prohibited underwriting, rating and
credit scoring factors
No insurer underwriting or rating a policy of personal lines
insurance shall use any of the following as a negative factor in any credit
scoring methodology or in reviewing the credit history of any consumer:
(1) Credit inquiries not initiated by the
consumer;
(2) Credit inquiries
relating to insurance coverage;
(3) Disputed information that is currently
under investigation by the consumer reporting agency, if so identified on the
records of such agency;
(4)
Collection accounts with a medical industry code, if so identified on the
records of the consumer reporting agency;
(5) 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 days of one another, unless only
one inquiry is considered; or
(6)
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 days of one another, unless only one inquiry is considered.
(G) Disclosure
requirements
(1) The consumer must be
provided notice either prior to or at the time the insurance application is
taken that credit history or a credit score may be obtained and used in
connection with underwriting or rating a policy. Such notice shall either be
written or provided to the consumer in the same medium as the application for
insurance. The insurer need not provide such notice to any insured on a renewal
policy, if such notice has previously been provided.
(2) If an adverse action is taken as a result
of credit history or a credit score the following disclosures must be made to
the consumer in writing within thirty days of the date the adverse action is
taken:
(a) The insurer must identify and
describe the nature of the adverse action;
(b) The insurer must describe the significant
factors of the credit history or credit score that resulted in the adverse
action, which may include the descriptive credit explanations provided by
credit scoring vendors; and
(c)
The insurer must provide the consumer with all disclosures required by the Fair
Credit Reporting Act, 15, U.S.C. 1681 et seq. (1998). Such disclosures shall
include:
(i) The name, address, and telephone
number of the consumer reporting agency (including a toll-free telephone number
established by the agency if the agency compiles and maintains files on
consumers on a nationwide basis) that furnished the consumer information;
(ii) A statement that the consumer
reporting agency did not make the decision to take the adverse action and is
unable to provide the consumer with the specific reasons why the adverse action
was taken;
(iii) Notice to the
consumer of the consumer's right to obtain a free copy of the consumer's credit
report from the consumer reporting agency; and
(iv) Notice to the consumer of the consumer's
right to dispute with the consumer reporting agency the accuracy or
completeness of any information in a credit report furnished by the agency.
(H) Updating credit history and credit scores
(1) If credit history or a credit score, or
any aspect thereof, is considered in underwriting or rating a consumer and a
consumer reporting agency determines that the credit information is inaccurate
or incomplete and the insurer receives notice of this determination from a
consumer or a consumer reporting agency, the insurer shall, within thirty days
after receiving the notice:
(a) Re-underwrite
the consumer;
(b) Re-rate the
consumer; and
(c) Adjust the
premium as indicated in paragraph (H)(2) of this rule.
(2) If it is determined by the
re-underwriting or re-rating in accordance with paragraph (H)(1) of this rule
that the consumer has overpaid the premium, the insurer shall refund to the
consumer the amount of the overpayment of premium. Such payment shall be
calculated back to the shorter of:
(a) The
last twelve months of coverage; or
(b) The current policy term.
(3) After any policy of insurance
has been issued and in the absence of a determination of the consumer reporting
agency that the consumer's information is inaccurate or incomplete as described
in paragraph (H)(1) of this rule, the insurer must recheck the insured's credit
history or credit score at the written request of the insured, but no more than
once every twelve months. The insurer may wait to recheck the credit
information until the next renewal. The insurer shall adjust the premium or
coverage of any insured whose credit history or credit score was rechecked
under this section that reflects any change in the insured's credit history or
credit score. Any such premium or coverage adjustment shall be applied
prospectively to the next policy term.
(I) Compliance with rule
(1) Section
3901.20 of the Revised Code
prohibits insurers from engaging in unfair or deceptive acts. Section
3901.21 of the Revised Code
defines as an unfair and deceptive act the following unfair discriminatory
conduct:
Making or permitting any unfair discrimination between
individuals of the same class and of essentially the same hazard in the amount
of premium, policy fees, or rates charged for any policy or contract of
insurance, other than life insurance, or in the benefits payable thereunder, or
in underwriting standards and practices or eligibility requirements, or in any
of the terms or conditions of such contract, or in any other manner whatever.
(2) Division (A) of
section 3937.02 and division (C) of
section 3935.03 of the Revised Code set
forth the factors an insurer or rating organization may consider in
establishing rates for property and casualty insurance. Division (C) of section
3937.02 of the Revised Code
provides that risks may be grouped by classification for the establishment of
rates and minimum premiums, and states:
Classification rates may be modified to produce rates for
individual risks in accordance with rating plans which establish standards for
measuring variations in hazards or expense provisions, or both. Such standards
may measure any differences among risks that can be demonstrated to have a
probable effect upon losses or expenses.
(3) Division (D) of section
3937.02 of the Revised Code
further provides: "Rates shall not be excessive, inadequate, or unfairly
discriminatory."
In order to comply with the foregoing paragraphs, insurers
shall abide by the following guidelines:
(a) Insurers shall establish that credit
history and credit scores used in underwriting or rating determinations are
valid risk characteristics and are used in accordance with actuarial principles
and standards of practice.
(b) If
a consumer has no available credit history (known as a "no hit"), has
insufficient credit history to develop a credit score (known as "no score"), or
the available credit history is not used for rating, the consumer must be
underwritten and rated in accordance with actuarial principles and standards of
practice.
(c) Insurers shall not
use credit history or credit scores for arbitrary, capricious or unfairly
discriminatory purposes. Credit history and credit scores shall not be based on
race, color, religion, national origin, sex, marital status, handicap, or age.
(d) Insurers must maintain,
implement and make available standards concerning how credit history and credit
scores affect underwriting and rating decisions. Insurers shall file with the
superintendent all risk classification criteria and rating manuals that relate
to credit history and credit scores.
(e) If a credit scoring model is modified or
if its use in determining rates or rating plans is modified, the insurer shall
re-file risk classification criteria and rating manuals with the
superintendent, and shall re-establish that the credit scores are valid risk
characteristics and are used in accordance with actuarial principles and
standards of practice.
(J) Severability
If any provision of this rule or the application thereof to any
person or circumstance is for any reason held to be invalid, the remainder of
the rule and the application of the remaining provisions to such persons or
circumstances shall not be affected thereby.
Five Year Review (FYR) Dates:
8/31/2017 and
08/31/2022
Promulgated
Under: 119.03
Statutory
Authority: 3901.041,
3901.21
Rule
Amplifies: 3901.20,
3901.21
Prior
Effective Dates: 6/12/2003, 3/20/2008
