ARIZONA STATE SENATE
Phoenix, Arizona
FINAL
REVISED
insurance
underwriting; credit history
(NOW: credit
history; insurance underwriting)
Establishes disclosure requirements for providing consumers with any information regarding the use of a credit- or insurance-score for insurance underwriting purposes.
Most insurance companies utilize an insurance score, which is derived from a consumer's credit report and used as a single variable in a multi-variate algorithmic model to determine an applicant’s future risk and premium. Insurance carriers consider their model(s) to be proprietary and as such, their variables (including insurance scores) are neither public information, nor is their final scoring factor that determines the consumers’ rates for the insurance product. It is important to note that there are multiple models in the insurance industry and variables used in the models can shift rapidly, so an exact scoring formula is difficult to ascertain.
Concerns regarding the use of the credit information to determine insurance scores and its impact on insurance premium rates have been raised by numerous constituents, particularly when the information has lead to an increase in insurance rates. Also, often the company provides little information to either the consumer or the selling agent about how much weight the information is given to derive an underwriting decision. Critics argue that improved consumer awareness regarding the use of credit history as a tool for underwriting could enable the consumer to take necessary steps to improve an insurance score and possibly modify a premium rate. Advocates for the current system counter that the information is proprietary and that in fact, the information does offer a predictor across classes as to the amount of risk each individual (as a member of that class) holds. Thus, the scores are helpful in maintaining low insurance rates for lower-risked consumers.
This measure is substantively identical to S.B. 1018 passed earlier this session and it establishes protocol for insurance companies to provide consumers with information regarding the use of credit information for insurance underwriting purposes. The legislation also requires insurance companies to reconsider underwriting decisions if a consumer provides them with corrected credit information.
There is no anticipated fiscal impact to the state general fund associated with this measure.
1. Establishes that assigning an applicant or policyholder to a higher rating tier or failing to apply a premium discount based on a consumer report, insurance score or absence of credit history is an adverse underwriting decision.
2. Requires the insurance company:
a) Notify the consumer that the adverse underwriting decision was based in part on the use of a consumer report or absence of credit history;
b) Disclose the source of the consumer report and provide them with information on how to obtain a copy of the report; and,
c) Outline six items that negatively affect a consumer report.
3. Requires an insurance company to reconsider its underwriting decision based on corrected personal information provided by the consumer, if requested by the consumer, and as outlined in current statute.
4. Defines “insurance score”.
5. Provides for a general effective date.
Amendments Adopted by Committee of the Whole
1. Prohibits insurers from not renewing or from raising rates due to credit-related information from the person's consumer report as long as:
a) All financial obligations paid directly to the insurer were met by the insured.
b) The insured did not file a claim during the previous five years.
2. Clarifies that only credit-related information in the consumer report that triggers a higher tiered rating or loss of a discount is considered an adverse underwriting decision.
3. Clarifies that the disclosure requirements regarding the insured's credit information applies only to the credit-related information in the consumer report and are triggered only when the credit-related information leads to an adverse underwriting decision.
4. Becomes effective on January 1, 2003.
Amendments Adopted by Conference Committee
1. Removes the provision prohibiting insurers from not renewing or from raising rates due to credit-related information from the person's consumer report.
2. Removes the January 1, 2003 effective date.
House Action Senate
Action
FII 2/13/02 DPA/SE 9-0-1-0 BI 4/18/02 DP 5-0-1-0
3rd Read 4/4/02 53-1-6-0 3rd Read 5/2/02 28-0-2-0
Final Read 5/16/02 49-6-5-0 Final Read 5/16/02 29-0-1-0
Signed by Governor 5/22/02
Chapter 292
Prepared by Senate Staff
June 19, 2002