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23rd Legislature(2003-2004)

Bill Text 23rd Legislature

00 Enrolled SB 13                                                                                                          
01 Relating to using credit history or insurance scoring for insurance purposes; and providing for                         
02 an effective date.                                                                                                      
03                           _______________                                                                               
04    * Section 1.  The uncodified law of the State of Alaska is amended by adding a new section                         
05 to read:                                                                                                                
06       PURPOSE.  It is the purpose of this Act to regulate the use of credit information for                             
07 personal insurance so that consumers are provided with certain protections with respect to the                          
08 use of credit information.  This Act is not intended to apply to commercial insurance                                   
09 transactions.                                                                                                           
10    * Sec. 2.  AS 21.36 is amended by adding a new section to read:                                                    
11            Sec. 21.36.460.  Uses of and restrictions on credit history or insurance                                   
12       scoring applicable to personal insurance.  (a)  If an insurer writing personal                                  
13       insurance uses credit information in underwriting or rating a consumer, the insurer                               
14       shall disclose, either on the insurance application or, at the time the insurance                                 
01       application is taken, that the insurer will obtain credit information in connection with                          
02       the application.  The disclosure required under this subsection shall be in writing or in                         
03       the same medium as the application for insurance.  Use of the following statement                                 
04       constitutes compliance with this subsection:  "In connection with this application for                            
05       insurance, we will review your credit report or obtain or use a credit-based insurance                            
06       score based on the information contained in your credit report.  We may use this                                  
07       information to decide whether to insure you or how much to charge."  If an insurer                                
08       uses a third party to calculate the applicant's insurance score, the disclosure required                          
09       under this subsection must also contain language similar to:  "We may use a third                                 
10       party in connection with the development of your insurance score."                                                
11            (b)  An insurer that takes adverse action involving personal insurance against a                             
12       consumer based in whole or in part on credit history or insurance score shall provide                             
13       the consumer the opportunity to request reconsideration of the adverse action and                                 
14       provide written notice to the applicant or named insured.  The notice must                                        
15                 (1)  clearly and specifically state the significant factors of the credit                               
16       history or insurance score that resulted in the adverse action, in a manner that allows                           
17       the consumer to identify the basis for the adverse action;                                                        
18                 (2)  inform the consumer that the consumer is entitled to                                               
19                      (A)  request reconsideration of the adverse action; and                                            
20                      (B)  a free copy of the consumer's report under 15 U.S.C. 1681                                     
21            et seq. (Fair Credit Reporting Act);                                                                         
22                 (3)  inform the consumer that the consumer has the right to correct                                     
23       errors in the credit report;                                                                                      
24                 (4)  advise the consumer on ways to improve the consumer's insurance                                    
25       score; and                                                                                                        
26                 (5)  provide information to assist the consumer with the error correction                               
27       process.                                                                                                          
28            (c)  An insurer may use credit history to cancel, deny, underwrite, or rate                                  
29       personal insurance only in combination with other substantive underwriting factors.                               
30       For the purposes of this subsection,                                                                              
31                 (1)  refusal to offer personal insurance coverage to a consumer                                         
01       constitutes denial of personal insurance; and                                                                     
02                 (2)  an offer of placement with an affiliate insurer does not constitute                                
03       denial of coverage.                                                                                               
04            (d)  An insurer may not                                                                                      
05                 (1)  fail to renew or, at renewal, again underwrite or rate a personal                                  
06       insurance policy based in whole or in part on a consumer's credit history or insurance                            
07       score; the prohibition in this paragraph against underwriting or rating a personal                                
08       insurance policy at renewal may be waived by the consumer; waiver allowed under                                   
09       this paragraph must occur at each renewal;                                                                        
10                 (2)  cancel, deny, underwrite, or rate personal insurance coverage based                                
11       in whole or in part on                                                                                            
12                      (A)  the absence of credit history or the inability to determine                                   
13            the consumer's credit history if the insurer has received accurate and complete                              
14            information from the consumer; this subparagraph does not apply if the insurer                               
15            treats the consumer as if the consumer had neutral credit information as                                     
16            approved by the director;                                                                                    
17                      (B)  credit inquiries not initiated by the consumer;                                               
18                      (C)  credit inquiries relating to insurance coverage if identified                                 
19            on a consumer's credit report;                                                                               
20                      (D)  credit inquiries by the consumer for the consumer's own                                       
21            credit information;                                                                                          
22                      (E)  multiple lender inquiries if coded on the consumer's credit                                   
23            report as being for automobile, boat, recreation vehicle, or home mortgage                                   
24            loans, unless all inquiries under that code within a 30-day period are counted                               
25            as one;                                                                                                      
26                      (F)  credit history or an insurance score based on collection                                      
27            accounts identified with a medical industry code;                                                            
28                      (G)  the consumer's use of a particular type of credit card,                                       
29            charge card, or debit card or the absence of a credit card;                                                  
30                      (H)  the consumer's total available line of credit; however, the                                   
31            consumer's ratio of debt to total available line of credit may be considered;                                
01                      (I)  the age of the most recent automobile or home loan obtained                                   
02            by the consumer; however, an insurer may consider the bill payment history or                                
03            total number of loans; or                                                                                    
04                      (J)  the person's age when credit is established;                                                  
05                 (3)  use the credit history of the consumer when the consumer is                                        
06       adversely affected by a joint account owner who was the spouse of the consumer or a                               
07       joint account owner who is the spouse of the consumer and who is a party to a divorce                             
08       or dissolution action against the consumer; this paragraph applies only if the consumer                           
09       provides written notice to the insurer that identifies the credit information that is                             
10       adversely affected by the joint account owner; this paragraph does not prevent the use                            
11       of credit history that is not identified by the consumer as required by this paragraph;                           
12                 (4)  use an insurance score that is calculated using the income, age, sex,                              
13       address, zip code, census block, ethnic group, religion, marital status, or nationality of                        
14       the consumer as a factor;                                                                                         
15                 (5)  use credit history to determine an insurance score if the history is                               
16       obtained more than 90 days before the policy is issued;                                                           
17                 (6)  use an insurance score derived from an insurance scoring model to                                  
18       determine eligibility for an insurance payment plan; this paragraph does not prohibit                             
19       the use of credit history to evaluate the ability of the consumer to make payments.                               
20            (e)  If incorrect credit history is used to underwrite or rate personal insurance                            
21       coverage and a consumer is charged higher premiums or offered less favorable policy                               
22       terms due to the disputed credit history, the insurer shall reissue or rerate the policy                          
23       retroactive to the effective date of the current policy term, and the policy, as reissued                         
24       or rerated, shall provide premiums and policy terms the consumer would have been                                  
25       eligible for if accurate credit history had been used to underwrite or rate the policy.  If                       
26       an insurer determines that the insured has overpaid a premium, the insurer shall refund                           
27       to the insured the amount of overpayment calculated back to the last 12 months of                                 
28       coverage or the actual policy period, whichever period is shorter.  This subsection                               
29       applies only if the consumer discovers the incorrect credit history within 12 months                              
30       after the policy is issued, resolves the dispute as described under (f) of this section or                        
31       under the process in 15 U.S.C. 1681 et seq. (Fair Credit Reporting Act), and notifies                             
01       the insurer in writing that the dispute has been resolved.                                                        
02            (f)  If the use of disputed credit history results in denial or cancellation of                              
03       personal insurance coverage, an insurer shall reunderwrite the coverage without the                               
04       use of credit information as a factor.  This subsection applies only if, within 10 days                           
05       following denial or cancellation, the consumer provides a reconsideration certification                           
06       to the insurer that sets forth any items of the credit history that are disputed and that                         
07       indicates that the consumer has initiated the dispute resolution process in 15 U.S.C.                             
08       1681 (Fair Credit Reporting Act) by requesting a copy of the consumer's credit report.                            
09       An insurer's reconsideration certification form                                                                   
10                 (1)  is subject to filing and approval by the director under                                            
11       AS 21.42.120; and                                                                                                 
12                 (2)  shall be provided by an insurer to the consumer at the time of                                     
13       denial or cancellation.                                                                                           
14            (g)  This section does not require an insurer to use credit history for any                                  
15       purpose.                                                                                                          
16            (h)  An insurer shall indemnify, defend, and hold the insurer's producers                                    
17       harmless from all liability, fees, and costs arising out of or relating to the actions,                           
18       errors, or omissions of an insurance producer who obtains or uses credit information                              
19       or insurance scores for an insurer if the insurance producer follows the instructions of                          
20       or procedures established by the insurer and complies with any applicable law or                                  
21       regulation.  This subsection does not provide a consumer or other insured with a cause                            
22       of action that does not exist in the absence of this subsection.                                                  
23            (i)  In this section,                                                                                        
24                 (1)  "adverse action" has the meaning given in 15 U.S.C. 1681 et seq.                                   
25       (Fair Credit Reporting Act) and includes                                                                          
26                      (A)  cancellation, denial, or failure to renew personal insurance                                  
27            coverage;                                                                                                    
28                      (B)  charging a higher insurance premium for personal                                              
29            insurance than would have been offered if the credit history or insurance score                              
30            had been more favorable, whether the charge is by                                                            
31                           (i)  application of a rating rule;                                                            
01                           (ii)  assignment to a rating tier that does not have the                                      
02                 lowest available rates; or                                                                              
03                           (iii)  placement with an affiliate company that does not                                      
04                 offer the lowest rates available to the consumer within the affiliate                                   
05                 group of insurance companies; or                                                                        
06                      (C)  any reduction or adverse or unfavorable change in the                                         
07            terms of coverage or amount of personal insurance due to a consumer's credit                                 
08            history or insurance score; a reduction or adverse or unfavorable change in the                              
09            terms of coverage occurs when                                                                                
10                           (i)  coverage provided to the consumer is not as broad in                                     
11                 scope as coverage requested by the consumer but available to other                                      
12                 insureds of the insurer or any affiliate; or                                                            
13                           (ii)  the consumer is not eligible for benefits that are                                      
14                 available through affiliate insurers;                                                                   
15                 (2)  "affiliate" has the meaning given in AS 21.22.200;                                                 
16                 (3)  "consumer" means an individual policyholder or applicant for                                       
17       insurance;                                                                                                        
18                 (4)  "consumer report" has the meaning given in 15 U.S.C. 1681 et seq.                                  
19       (Fair Credit Reporting Act);                                                                                      
20                 (5)  "credit history" means written, oral, or other communication of                                    
21       information by a consumer reporting agency bearing on a consumer's                                                
22       creditworthiness, credit standing, or credit capacity that is used or expected to be used,                        
23       or collected in whole or in part, for the purpose of serving as a factor in determining                           
24       personal insurance premiums or eligibility for coverage;                                                          
25                 (6)  "insurance score" means a number or rating that is derived from an                                 
26       algorithm, computer application, model, or other process that is based in whole or in                             
27       part on credit history;                                                                                           
28                 (7)  "personal insurance" means                                                                         
29                      (A)  private passenger automobile or motorcycle coverage;                                          
30                      (B)  homeowner coverage, including mobile homeowner's,                                             
31            manufactured homeowner's, condominium owner's, and renter's coverage;                                        
01                      (C)  dwelling property coverage;                                                                   
02                      (D)  earthquake coverage for a residence or personal property;                                     
03                      (E)  personal liability and theft coverage;                                                        
04                      (F)  personal property inland marine coverage;                                                     
05                      (G)  personal boat, watercraft, snowmobile, and recreational                                       
06            vehicle coverage; and                                                                                        
07                      (H)  umbrella insurance coverage.                                                                  
08    * Sec. 3.  AS 21.39 is amended by adding a new section to read:                                                    
09            Sec. 21.39.035.  Required filing of insurance scoring models; personal                                     
10       insurance.  (a)  Credit history may not be used to determine personal insurance rates                           
11       or premiums or to make underwriting decisions unless the insurance scoring models                                 
12       are filed with the director.  Insurance scoring models include all attributes and factors                         
13       used in the calculation of an insurance score, statistical validation, documentation,                             
14       appropriate loss information, and any other relevant factors.                                                     
15            (b)  Information filed under (a) of this section                                                             
16                 (1)  is confidential, shall be considered a trade secret, and is not subject                            
17       to public inspection under AS 21.06.060;                                                                          
18                 (2)  may be released or otherwise shared as provided in AS 21.06.060;                                   
19       and                                                                                                               
20                 (3)  shall be filed by the insurer and may not be filed by a third party or                             
21       vendor.                                                                                                           
22            (c)  An insurer shall comply with AS 21.36.460 when using credit history to                                  
23       calculate a personal insurance score or determine personal insurance premiums or                                  
24       rates.                                                                                                            
25            (d)  Notwithstanding (b) of this section, the director shall make available to the                           
26       public a general description of the insurance scoring models filed under (a) of this                              
27       section.  A general description of insurance scoring models may not disclose any trade                            
28       secrets contained in the models.                                                                                  
29            (e)  In this section,                                                                                        
30                 (1)  "credit history" has the meaning given in AS 21.36.460;                                            
31                 (2)  "insurance score" has the meaning given in AS 21.36.460;                                           
01                 (3)  "personal insurance" has the meaning given in AS 21.36.460.                                        
02    * Sec. 4.  AS 21.36.460(g), added by sec. 2 of this Act, and AS 21.39.035(b), added by sec.                        
03 3 of this Act, take effect June 1, 2003.                                                                                
04    * Sec. 5.  Except as provided in sec. 4 of this Act, this Act takes effect January 1, 2004.                        
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