Ala. DOI Proposes Rule on Credit Scoring

April 25, 2003

The Alabama Insurance Department has issued a notice of hearing to inform the industry of its plan to adopt proposed Regulation No. 127, to be known as the “Use of Credit Information for Determining Rates and Eligibility for Personal Insurance.”

The proposed regulation sets forth restrictions and procedural requirements for personal lines insurers licensed in Alabama who use an applicant’s credit history to calculate rates and determine eligibility for coverage or tier placement. A public hearing will be held Tuesday, May 6, at which the Alliance of American Insurers (AAI) will submit comments.

Proposed Regulation 127 would prohibit insurers from refusing to issue, canceling or nonrenewing a personal lines policy solely due to credit information. Insurers would also be prohibited from considering the number of inquires found on an applicant’s credit record when determining premiums, tier placement or underwriting decisions “unless said insurers files and the Department concurs with actuarial documentation which supports other practices.” Consistent with provisions found in several other states, insurers would further be prohibited from considering credit collection information coded with a medical industry code and multiple lender inquiries associated with the purchase of a home or automobile.

Regulation 127 requires insurers to file any insurance credit scoring
system used and to make available upon request specific written
procedures detailing when scores with be ordered, whom scores will be ordered on (named insured, all household members etc.), how such
information will be used in underwriting and rating, any applicant notification language, and adverse action forms.

The definition of “adverse action” and the dispute resolution process reportedly mirror those currently found in the federal Fair Credit Reporting Act(FCRA), except that the regulation provides that an offer of placement with an affiliate company is not an adverse action.

Was this article valuable?

Here are more articles you may enjoy.