Pickens Announces Credit Scoring Protections for Ark. Policyholders

According to Arkansas Insurance Commissioner Mike Pickens, the enactment of a new law will give Arkansas insurance consumers stronger protections in the use of credit information and credit scoring when purchasing and renewing insurance coverage.

Act 1452 of 2003, which was signed by Governor Huckabee, provides consumers new disclosures and protections for personal lines of insurance coverage purchased in the State of Arkansas. The new law becomes effective January 1, 2004.

“The new law strengthens the law already in place regarding insurers’ use of credit scoring in insurance,” Commissioner Pickens said. “Arkansans now have more protection and insurers are specifically restricted from using certain information regarding insurance consumers’ credit when underwriting or rating coverage.”

The new Act, outlines the following restrictions:
1. Insurers are prohibited from using medical collection accounts in credit scoring
2. Insurers cannot use, as a negative factor, credit inquiries in excess of one, and made within 30 days when such inquiries are from automobile or homeowner lenders.
3. Credit inquiries initiated by a consumer when used by the consumer for his or her own credit information, or when used for insurance inquiries, may not be used as a negative factor.
4. Insurers cannot deny, cancel or non-renew an insurance policy based solely on credit, without consideration of other applicable underwriting factors.
5. Insurers cannot penalize or take adverse action against a consumer solely because the consumer does not have a credit card account.
6. Insurers must use credit reports issued or credit scores calculated within the 90-day period prior to the issuance of the policy.

The new law also requires the Arkansas Insurance Department to collect aggregate information regarding the net affect of credit scoring on Arkansas consumers during the preceding year. That information would include the number of Arkansas consumers whose premiums increased or decreased due to the use of credit information or credit scoring in insurance underwriting.