HB2135 - 452R - House Bill Summary

House of Representatives

HB 2135

insurance; consumer credit; credit property

Sponsors: Representative Carpenter

DPA	Committee on Financial Institutions & Insurance
DP	Committee on Commerce & Economic Development
x	Caucus and COW
	Third Read
	As Passed the House

HB 2135 establishes the regulation of credit property insurance and credit unemployment insurance by the Department of Insurance. Statutory changes requiring disclosure notices, filing of rates, experience reports and loss ratio data with the department are contained in the bill.

Current Status

HB 2135 was amended in the committee on Financial Institutions and Insurance making numerous changes on disclosure requirements, filing requirements and enforcement provisions. The amendment provides that the director shall establish a loss ratio standard once every three years, which should reflect actual and expected loss experience of insurers, including reasonable catastrophe provision and other rating components. HB 2135 passed the Commerce and Economic Development committee unamended.

History

Arizona currently has laws that regulate credit life insurance and credit disability insurance products. This insurance is designed to cover consumer debt in the advent of death or disability. Similar lines of coverage are offered through credit property and unemployment insurance. Credit property insurance is a form of casualty insurance providing coverage on personal property used as collateral securing a loan or on personal property purchased under an installment sales agreement. These products are not regulated and are not subject to the same consumer protections as credit life and disability insurance, such as requiring benefits to be reasonable in relation to premiums, or providing disclosure notices. In addition, without filed rates and experience reports, information on loss ratios paid out in claims and the reasonableness of premiums charged to consumers remains in question. The National Association of Insurance Commissioners (NAIC) developed a model act that would regulate these products and establish a separation between creditors and insurers. The proposed legislation incorporates the provisions of the NAIC model act.

Provisions

· Requires all consumer credit insurance offered in association with a loan or credit transaction to be subject to regulation by the Department of Insurance.

· Defines consumer credit insurance and credit property insurance.

· Contains an exemption for insurance on credit transactions of more than fifteen years or for coverage written in connection with credit transactions for the finance of real property or the construction of a dwelling or to refinance a prior credit transaction.

· Provides that various types of consumer credit insurance may be written separately or in a combined manner, but the director may prohibit or limit any combination by rule.

· Establishes that the maximum amount of the consumer credit insurance coverage shall not exceed the sum of the remaining payments or gross debt.

· Stipulates that credit unemployment shall provide a monthly benefit commencing after thirty days from the time of unemployment. Certain exclusions, such as voluntary forfeiture of salary, resignation and seasonal employment apply.

· Requires the coverage to commence on the date the obligation is incurred and specifies that coverage is not to exceed beyond fifteen days of the maturity of the loan.

· Contains disclosure provisions such as written notice at the time of sale stating that the insurance is optional, can be purchased separately from other types of insurance and that a trial period provides an opportunity to cancel the coverage. The disclosure must also include the amount, terms and exclusions of the insurance, as well as the premium rate and deductible information.

· An extension of the credit insurance shall contain similar disclosure provisions including the name and address of the insurer or the name of the debtor. In the case of group insurance, affiliate information must be provided. Notice must be provided to the consumer within ten days of an offer to extend the credit property insurance.

· Requires similar notice for open-ended lines of coverage and contains the cancellation provisions stated above for extended coverage.

· Stipulates that forms must be filed and approved by the department prior to issuing credit insurance policies. A form is deemed approved after thirty days period unless the director issues a disapproval order.

· Requires that schedule of premium rates and any revisions be filed and approved by the department. Filed rates are deemed approved after thirty days period unless the director issues a disapproval order.

· Specifies that filed rate information shall include the rate formula, anticipated losses and reflect a loss ratio of not less than sixty percent.

· Provides investigative authority for the department to ensure statutory compliance. Establishes a hearing process for insurers to appeal violations imposed by the department.

· Contains penalty provisions of $1,000 per violation up to $100,000 and $25,000 for each violation up to $250,000 for flagrant violations. The director has license suspension and revocation authority. The director may also bring an action in superior court for infractions of law.

· Requires an insurer to file an annual experience report with the Director and the NAIC.

· Stipulates that rates that have been filed and approved are valid for up to three years and that new rates must be filed prior to the expiration of the three years.

· Grants rulemaking authority for the director to carry out the provisions of the statute.

· Contains a legislative intent language establishing the need for consumer protection and the separation of creditors and insurers to eliminate unfair competitive practices.

· Contains technical and conforming changes.

HB 2135 was amended in the Committee on Financial Institutions and Insurance as follows:

· Clarifies the definition of credit disability insurance as coverage of debts for payments that are impending or outstanding. It also adds certificate as a means of insurance coverage.

· Stipulates that an insurer can offer credit disability insurance with periodic or lump sum indemnity that exceeds the creditor’s minimum repayment schedule, but the indemnity may not exceed the net debt. Net debt is defined as the amount necessary to liquidate a debt in a single lump sum payment, excluding the unearned interest and other unearned finance charges.

· Modifies disclosure provisions, however, customers must still be informed about the amount and terms of coverage. Disclosure can be made orally or electronically. Anything conveyed orally must also be followed up with written notice within ten days of purchasing the coverage.

· Provides that insurance offered contemporaneously with the extension of credit or offered through direct mail advertisements shall be in written form.

· Clarifies that disclosure information may also be combined with other information required by state or federal law.

· Limits the trial period to thirty days only. The debtor may not cancel after the trial period has expired.

· Provides that if the insurer is not willing to assume the risk another insurer may agree to provide substitute coverage.

· Replaces the loss ratio threshold of sixty percent with language that states the rates shall not be excessive or unfairly discriminatory. The director shall establish a loss ratio standard once every three years, which should reflect actual and expected loss experience of insurers. The director must also establish prima facie rates. In light of department rate examinations, the triennial rate filing requirement is eliminated.

· Establishes an effective date from and after December 31, 2002.

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45th Legislature