The
Department seeks your proactive cooperation in this matter.
Consumers must understand how the use of credit can
affect their ability to obtain certain types of insurance
and also affect the cost of that insurance.
If they are provided with sufficient information,
consumers can take steps to avoid credit problems in the
future. Many
consumers are aware of how a bank or credit card company
may view their credit.
However, insurance companies often evaluate credit
information differently than a bank does.
Also, different insurance companies evaluate
the same credit information differently.
Even more importantly, credit reports sometimes contain
errors that can cost consumers money in increased premium.
Consumers have a legal right to correct those errors
and to understand how the use of credit affects their insurance.
There
are several statutes that govern this notification process,
and as insurers, you have the obligation to comply with
all of these statutes.
If you deny, nonrenew, limit the scope or amount
of coverage, or charge higher rates for homeowners or automobile
insurance solely on the basis of credit, you must send written
notice to those individuals, advising them that this action
was taken because of their credit history and telling them
that they may request a copy of their credit report. [Section
33-18-210(11)(b), Montana Code Annotated, 2001]
Also, Section 31-3-131, MCA requires that insurers,
who deny or charge more for personal, family
or household insurance 0wholly or in part
because of information contained in a consumer report, shall
advise the consumer that the adverse action was taken because
of their credit history and must supply the name and address
of the agency making the report. These two statutes make
it clear that when an adverse underwriting decision
is made or a consumer is charged more for their insurance
for reasons based in any part on credit history, the consumer
must be so notified and must also be advised of their right
to obtain a copy of their credit report. In
addition, the Montana Insurance Information Privacy
Protection Act provides that individuals have the right
to request specific reasons for ALL adverse underwriting
decisions. The
provisions of 33-19-303, MCA must be followed even when
33-18-210(11)(b) and 31-3-131 apply. When
an adverse underwriting or rating decision is made, the
insurance institution must inform the applicant or insured
in writing of the specific reasons for the adverse underwriting
decision and inform that person of his or her rights under
33-19-301 [Access to recorded personal information] and
33-19-302 [Correction, amendment, or deletion of recorded
personal information.] The law also allows the insurer the
option of instead notifying that consumer of
his or her right to request, within 90 days, those
specific reasons. Companies then have 21 business days to
respond. However,
to avoid increased harm to consumers caused by this delay,
the insurance department maintains that the better practice
is to specify the reasons immediately without waiting for
a consumer’s request. Consumers must also be told how often
their credit score or credit history is reviewed by the
company, and also that the consumer may request that the
underwriting or rating decision be reconsidered after a
correction to their credit report has been made or after
they believe that their credit information has otherwise
improved. [See 33-19-301 and 33-19-302, MCA.] When
credit history contributes to an adverse underwriting decision,
a copy of a credit report alone is NOT sufficient to meet
the requirement of “specific reasons.”
The insurer must point out what specific items in
that individual’s credit report resulted in the adverse
decision, and/or what specific credit factors resulted in
an unfavorable credit score, as well as give an explanation
of how credit history affects that person’s risk as an insured
driver or homeowner and what makes credit history a reason
for an adverse underwriting decision.
The two major organizations that sell credit scores
to insurers have assured the Department that any insurance
company using their services may access the specific reasons
for a particular credit score.
Those organizations are then able to specify the
main credit factors that resulted in a particular credit
score, and that information can be communicated to the consumer.
Companies must inform consumers that the law in Montana
allows insurance companies to use credit history under certain
circumstances and that the company has made a voluntary
decision to use credit history and the reasons why.
Companies may not mislead consumers by telling them
that the law in Montana or the Department of Insurance requires
them to use credit history. “Adverse
underwriting decision” is defined in part, as a declination;
a termination; failure to place insurance with a specific
insurance institution; placement with a residual market
mechanism, unauthorized insurer, or company that specializes
in substandard risks; OR charging a higher rate
on the basis of information that differs from that which
the applicant or policyholder furnished. [33-19-104(1),
MCA, 2001] Credit
information or credit scores are never furnished by the
applicant or the insured and must always be obtained from
an outside source. Therefore, charging a higher rate wholly
or in part because of reasons related to credit, will always
be an adverse underwriting decision. “Charging a higher
rate” means any practice that causes an individual to pay
more for their insurance, either for initial premium or
on renewal, including but not limited to,
refusal to apply discounts based on credit that would
result in a lower rate, or placement of a risk into a higher
premium/rate tier within a company or placement into a higher
premium/rate company within a group of companies. Because
of the need to educate consumers and to protect them against
possible errors in their credit reports, the Commissioner
is taking this opportunity to remind all property and casualty
insurers of their obligation to tell consumers of their
right to obtain a copy of their credit report and to fully
inform consumers of the specific reasons for adverse underwriting
decisions, particularly those based on credit, as required
by Montana law. Failure to do so is a possible violation
of Section 33-19-303, MCA and/or 33-18-210(11)(b) and 31-3-131,
MCA. Consumers must also be notified of their rights to
access recorded personal information [33-19-301] and to
correct or dispute information contained in their credit
reports and in insurance company records. [33-19-302 and
31-3-124, MCA] The
Department will enforce these statutes in the manner outlined
in this memo for any adverse underwriting decisions made
since June 1, 2001.
The penalty for violation of the insurance code provisions
addressed above is up to $25,000 per violation.
Each adverse underwriting decision for each policyholder
will be considered a separate violation.
In addition, Montana statute provides for remedies
that are available to individual consumers. [33-19-407 and
31-3-141, MCA] If
you have any questions concerning this advisory memorandum,
you may contact the Montana Department of Insurance at 406-444-2040.
SUMMARY OF REQUIRED ACTION
C
If you deny, nonrenew, limit the scope or amount
of coverage, or charge more for homeowners or automobile
insurance on the basis of credit, either wholly or in part,
you must send written notice to those individuals advising
them that this action was taken because of their credit
information and that they may request a copy of their credit
report. C
In addition, when any adverse underwriting decision
occurs, including those based on credit in any part, insurers
must advise the consumer of the specific reasons for that
adverse underwriting decision; for example: specific items
in an individual’s credit report that caused the adverse
effect, or if a “score” is used, specific credit factors
that resulted in an unfavorable score, and also an explanation
of how credit history affects an insured’s risk.
C
Insurers must also tell consumers the reasons why
they are using credit history, how often credit history
or credit scores are reviewed by the company, and also that
consumers may request that their credit information be corrected
or re-reviewed upon their request. C
The company must disclose that the company has made
a voluntary decision to use credit information and may not
mislead consumers by telling them that the law in Montana
or the Department of Insurance requires them to use credit
history.
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