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Current Status Bill Number:View additional legislative information at the LPITS web site.4734 Type of Legislation:General Bill GB Introducing Body:House Introduced Date:20020214 Primary Sponsor:Walker All Sponsors:Walker, Cato, Allison, Altman, Bales, Barfield, Barrett, Bingham, G. Brown, Campsen, Chellis, Coates, Cooper, Dantzler, Davenport, Edge, Emory, Fleming, Frye, Gilham, Hamilton, Harrison, Haskins, Hinson, Huggins, Keegan, Kelley, Kirsh, Knotts, Koon, Law, Leach, Limehouse, Littlejohn, Loftis, Lucas, McCraw, McGee, McLeod, Meacham-Richardson, Merrill, J.M. Neal, Ott, Owens, Phillips, Quinn, Rhoad, Rice, Riser, Robinson, Rodgers, Sandifer, Sharpe, Simrill, Sinclair, D.C. Smith, G.M. Smith, J.R. Smith, W.D. Smith, Snow, Stille, Stuart, Talley, Thompson, Townsend, Tripp, Trotter, Vaughn, Webb, Whatley, White, Wilder, Wilkins, Witherspoon, A. Young and J. Young Drafted Document Number:l:\council\bills\skb\18197zcw02.doc Residing Body:House Current Committee:Labor, Commerce and Industry Committee 26 HLCI Subject:Automobile insurance, use of credit information in making underwriting and rate making decisions History Body Date Action Description Com Leg Involved ______ ________ ______________________________________ _______ ____________ House 20020214 Introduced, read first time, 26 HLCI referred to Committee Versions of This Bill
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING ARTICLE 13 TO CHAPTER 77, TITLE 38, RELATING TO AUTOMOBILE INSURANCE, SO AS TO ESTABLISH PROVISIONS FOR USING CREDIT INFORMATION IN MAKING UNDERWRITING AND RATE MAKING DECISIONS.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 77, Title 38 of the 1976 Code is amended by adding:
Section 38-77-1710. This article applies to automobile insurers that use credit reports or credit scores for:
(1) underwriting purposes, including determinations that may result in either a declination or placement with a particular insurer within a group of affiliated insurers; or
(2) rate making purposes, including determinations that result in surcharges or in tier placement or other classification within an insurer.
Section 38-77-1720. As used in this article:
(1) 'Credit criterion' means information bearing on a particular aspect of an individual's credit history.
(2) 'Credit report' means any written, oral, or other communication of any information by a consumer-reporting agency that:
(a) bears on a consumer's credit worthiness, credit standing, or credit capacity; and
(b) is used or collected or expected to be used or collected wholly or partly to serve as a factor in establishing the consumer's eligibility or pricing for automobile insurance.
(3) 'Credit score' means a score that is derived by utilizing data from an individual's credit report in an algorithm, computer program, model, or other process that reduces the data to a number or rating.
(4) 'Tier' means a category within a single insurer into which insureds with similar risk characteristics are placed for purposes of determining a premium rate.
(5) 'Increase in premium' includes an increase in premium for any coverage on a policy due to:
(a) surcharge;
(b) retiering or other reclassification of an insured; or
(c) removal or reduction of a discount.
Section 38-77-1730. (A) An insurer or an agent of an insurer may not obtain a credit report or credit score for an applicant or insured unless the insurer or agent obtains a credit report or credit score:
(1) for each applicant or named insured of the insurer; or
(2) in accordance with a written standard for determining when to obtain a credit report or credit score that meets the requirements of subsection (B) of this section.
(B) A written standard for determining when to obtain a credit report or credit score must:
(1) prohibit obtaining a credit report or credit score based wholly or partly on income level, race, creed, national origin, ancestry, marital status, or lawful occupation, including military service;
(2) prohibit obtaining a credit report or credit score for any arbitrary, capricious, or unfairly discriminatory reason;
(3) require the decision to obtain a credit report or credit score to be reasonably related to the insurer's economic and business purpose; and
(4) otherwise comply with Sections 38-77-122 and 38-77-123 of the 1976 Code.
(C) At the request of the director, or his designee, an insurer must file with the department a copy of its written standard.
Section 38-77-1740. (A) If an insurer, or an agent on behalf of an insurer, uses credit criteria or a credit score wholly or partly as a reason to cancel or refuse to renew coverage, to refuse to underwrite a particular insurance risk or class of risk, or to place an applicant with a particular insurer within a group of affiliated insurers, the credit criteria or credit score must be established and used in a manner that:
(1) is not based wholly or partly on race, creed, national origin, ancestry, marital status, income level, or lawful occupation, including military service of the applicant or insured;
(2) is not arbitrary, capricious, or unfairly discriminatory;
(3) is reasonably related to the insurer's economic and business purposes; and
(4) results in placement of an applicant in the most favorably-priced insurer for which the applicant qualifies within a group of affiliated insurers.
(B) If an initial inquiry by an insurer or agent fails to generate a credit report or credit score, the insurer or agent must:
(1) notify the applicant or insured that the initial inquiry failed to generate a credit report or credit score;
(2) verify the accuracy of:
(a) the name of the applicant or insured, including ensuring that the insurer or agent has the full name of the applicant or insured, including any middle initial, and that the name is spelled correctly;
(b) the address of the applicant or insured; and
(c) any other information that the insurer or agent obtained from an applicant or insured in order to obtain a credit report or credit score for the applicant or insured;
(3) allow the applicant or insured an opportunity to provide any information about the credit history of the applicant or insured;
(4) document in the appropriate file the notice to the applicant or insured and any response from the applicant or insured; and
(5) retain the documentation for at least three years after the date that the notice was provided.
(C) If any of the information that the insurer or agent used in order to obtain a credit report or credit score for an applicant or insured was inaccurate or incomplete, the insurer or agent must:
(1) make a second attempt to obtain a credit report or credit score for the applicant or insured;
(2) document in the appropriate file the second attempt to obtain a credit report or credit score for the applicant or insured; and
(3) retain the documentation for at least three years after the date of the second attempt to obtain a credit report or credit score for the applicant or insured.
(D) If an applicant or insured does not have any credit history or has insufficient credit history to generate a credit score, an insurer, or an agent on behalf of an insurer, must treat the applicant or insured as if the applicant or insured had a neutral credit history or median credit score, as defined by the insurer's underwriting guidelines, with respect to any underwriting decision, including a decision about:
(1) whether to underwrite a particular insurance risk or class of risk;
(2) placement of an applicant or insured with a particular insurer within a group of affiliated insurers; or
(3) whether to renew coverage.
(E) If an insurer or agent cancels or refuses to renew a policy or refuses to underwrite a risk based wholly or partly on information contained in a credit report or credit score that the insurer or agent knows is inaccurate or incomplete, the action of the insurer or agent is deemed to be:
(1) arbitrary, capricious, and unfairly discriminatory;
(2) not reasonably related to the insurer's economic and business purposes; and
(3) in violation of this article.
(F) If a credit report agency determines that the credit report or credit score of an applicant or insured is incorrect due to inaccurate or incomplete information in the credit report and the insurer receives notice of this determination from the applicant, insured, or
credit reporting agency, the insurer shall, within thirty days after receiving the notice:
(1) re-underwrite the applicant or insured; and
(2) if it is determined by the re-underwriting that the applicant or insured has overpaid the premium, refund to the applicant or insured the amount of the overpayment of premium, calculated back to the shorter of:
(a) the last twelve months of coverage; or
(b) the actual period of coverage.
Section 38-77-1750. (A) On request of the director, or his designee, an insurer that uses credit criteria or a credit score wholly or partly as a reason to cancel or refuse to renew coverage or to refuse to underwrite a particular insurance risk or class of risk, or another person authorized by the director to act on behalf of the insurer, must file with the director, or his designee:
(1) the characteristics or factors from a credit report that are used as credit criteria or used in determining a credit score;
(2) in the case of credit scoring, the algorithm, computer program, model, or other process that is used in determining a credit score;
(3) the underlying information, including statistical validation, that was relied on to develop the algorithm, computer program, model, or other process that is used in determining a credit score; and
(4) any underwriting standards relating to the use of the credit criteria or credit score, including the use of a range of credit scores.
(B) An insurer may not use any credit criteria or credit score wholly or partly as a reason to cancel or refuse to renew coverage or to refuse to underwrite a particular insurance risk or class of risk if:
(1) the credit criteria or credit score is directly or indirectly derived from any information that the insurer is required to file with the director, or his designee, under subsection (A) of this section; and
(2) the insurer fails to file the information with the director, or his designee.
Section 38-77-1760. (A) This section applies to an insurer that uses credit criteria or a credit score as a rating factor, including using credit criteria or a credit score as a factor for:
(1) placement in a tier or other classification; or
(2) rate modification, including a discount.
(B) If an insurer uses credit criteria or a credit score as part of the insurer's rate-making standards, the credit criteria or credit score shall be established and used in a manner that:
(1) does not result in rates that are excessive, inadequate, or unfairly discriminatory;
(2) results in placement of an insured in the most favorably-priced tier or other classification for which the insured qualifies; and
(3) results in application of the most favorable rate modification for which the insured qualifies.
(C) If initial inquiry by an insurer or agent fails to generate a credit report or credit score, the insurer or agent must:
(1) notify the applicant or insured that the initial inquiry failed to generate a credit report or credit score;
(2) verify the accuracy of:
(a) the name of the applicant or insured, including ensuring that the insurer or agent has the full name of the applicant or insured, including any middle initial, and that the name is spelled correctly;
(b) the address of the applicant or insured; and
(c) any other information that the insurer or agent obtained from an applicant or insured in order to obtain a credit report or credit score for the applicant or insured;
(3) allow the applicant or insured an opportunity to provide any information about the credit history of the applicant or insured;
(4) document in the appropriate file the notice to the applicant or insured and any response from the applicant or insured; and
(5) retain the documentation for at least three years after the date that the notice was provided.
(D) If any of the information that the insurer or agent used in order to obtain a credit report or credit score for an applicant or insured was inaccurate or incomplete, the insurer or agent must:
(1) make a second attempt to obtain a credit report or credit score for the applicant or insured;
(2) document in the appropriate file the second attempt to obtain a credit report or credit score for the applicant or insured; and
(3) retain the documentation for at least three years after the date of the second attempt to obtain a credit report or credit score for the applicant or insured.
(E) If an applicant or insured does not have any credit history or has insufficient credit history to generate a credit score, an insurer, or an agent on behalf of an insurer, shall treat the applicant or insured as if the applicant or insured had a neutral credit history or median credit score, as defined by the insurer's rate-making standards, with respect to any rate-making decision, including a decision about:
(1) surcharging;
(2) tier placement or other classification; and
(3) rate modification, including a discount.
(F) If an insurer calculates a premium based wholly or partly on information contained in a credit report or credit score that the insurer knows is inaccurate or incomplete, the resulting rate is deemed to be:
(1) excessive, inadequate, or unfairly discriminatory; and
(2) in violation of this article.
(G) If a credit reporting agency determines that the credit report or credit score of an insured is incorrect due to inaccurate or incomplete information in the credit report and the insurer receives notice of this determination from the insured or credit reporting agency, the insurer must, within thirty days after receiving notice:
(1) re-rate the insured; and
(2) if it is determined by the re-rating that the insured has overpaid the premium, refund to the insured any overpayment of premium, calculated back to the shorter of:
(a) the last twelve months of coverage; or
(b) the actual period of coverage.
Section 38-77-1770. (A) An insurer that uses credit criteria or a credit score as part of its rating methodology for determining placement in a tier or other classification or assignment of a rate, rating factor, or discount, or another person authorized by the director to act on behalf of the insurer, must file with the director, or his designee, as part of the insurer's rate filing:
(1) in the insurer's filed rating manual, the rate-related underwriting rule that defines the credit criteria or ranges of credit scores used to determine placement of an insured within a particular tier or other classification or assignment to an insured of a particular rate, rating factor, or discount;
(2) the underlying information, including statistical validation, that the insurer relied on for determining the credit criteria or ranges of credit scores that will result in:
(a) placement of an insured within a particular tier or other classification; or
(b) assignment to an insured of a particular rate, rating factor, or discount;
(3) the rating factor that will be applied to an insured who is placed in a particular tier or other classification and the particular rate, rating factor, or discount that will be applied to an insured who is assigned a rate, rating factor, or discount;
(4) the underlying information, including statistical validation, that the insurer relied on for determining:
(a) the rating factor that will be applied to an insured who is placed in a particular tier or other classification; and
(b) the particular rate, rating factor, or discount that will be applied to an insured who is assigned a rate, rating factor, or discount;
(5) In the use of credit scoring and at the request of the director, or his designee, the algorithm, computer program, model, or other process that is used in determining a credit score; and
(6) At the request of the director, the underlying information, including statistical validation, that was relied on to develop the algorithm, computer program, model, or other process that is used in determining a credit score.
(B) An insurer may not use any credit criteria or credit score wholly or partly as a reason for an increase in premium if:
(1) the credit criteria or credit score is directly or indirectly derived from any information that the insurer is required to file with the director, or his designee, under subsection (A); and
(2) the insurer fails to file the information with the director, or his designee.
Section 38-77-1780. (A) When an insurer cancels or refuses to renew a policy or binder, or cancels, refuses to renew, increases a premium for, or reduces coverage under a policy or binder based wholly or partly on a credit criterion or credit score, the insurer must provide the insured with:
(1) a reason in the statement of actual reason that is sufficiently clear and specific so that an insured of reasonable intelligence can identify the basis for the insurer's decision; and
(2) the information needed to obtain a copy of the insured's credit report as required by the federal Fair Credit Reporting Act.
(B) The use of generalized terms such as 'poor credit history', 'poor credit rating', or 'poor credit score' are not sufficient in notifying an insured as required by subsection (A).
(C) A reason provided in the statement of actual reason is sufficiently clear and specific if it identifies the primary attributes or characteristics of the insured's credit history that led to the insurer's decision.
(D) If an insured believes that a cancellation of, refusal to renew, increase in premium for, or reduction in coverage under a policy or binder is in violation of this article, the insured may request the director, or his designee, to review the action of the insurer.
(E) In the case of a cancellation of or refusal to renew a policy, the policy remains in effect until a finding is issued if the:
(1) insured asks the director, or his designee, to review the cancellation or refusal to renew before the effective date of the termination of the policy; and
(2) director, or his designee, begins action to issue a finding.
Section 38-77-1790. An insurer who submits information or materials to the director, or his designee, pursuant to Sections 38-77-1730(B), 38-77-1750(A), or 38-77-1770(A) may request a finding by the director that the information or materials constitute a trade secret or confidential information and are therefore exempt from public inspection."
SECTION 2. This act takes effect upon approval by the Governor.
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