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Restriction on Use of Credit Reports by Insurance Companies – New York

Author: LegalEase Solutions 

Introduction

You have asked us to research what restrictions on the use of credit reports by insurance companies for underwriting and rating personal lines insurance policies, both at new business and renewal, exist in New York.  These issues require discussion of:

  1. State statutes;
  2. Applicable case law in each state.

A state-by-state breakdown of the findings follows below:

NEW YORK

Insurance Law, Article 28 regulates the use of Credit Information.   The following sections deal with the use of credit information in underwriting and rating for personal lines insurance and restrictions thereof.

Laws 2004, ch 215, §  2, eff April 23, 2005, provides as follows:

  • 2. This act shall take effect on the two hundred seventieth day after it shall have become a law and shall apply to policies issued and/or renewed on and after such date; provided that the superintendent of insurance shall promulgate rules and regulations necessary to effectuate the provisions of this act at least sixty days prior to such effective date.

NY CLS Ins §  2802  (2005)

  • 2802. Use of credit information

An insurer doing business in this state that uses credit information to underwrite or rate risks for personal lines insurance, shall not:

(a) use an insurance score that is calculated using income, gender, address, zip code, ethnic group, religion, marital status, or nationality of the consumer as a factor;

(b) deny a policy of personal lines insurance solely on the basis of credit information, without consideration of any other applicable underwriting factor independent of credit information, provided that an offer by an insurer to provide coverage by writing a policy through an affiliate insurer or a tier within the insurer shall not constitute a denial of a policy;

(c) use credit information to cancel or nonrenew a policy or increase an insured’s premium for personal lines insurance on renewal provided that nothing in this section shall be construed to prohibit an insurer from considering an insured’s tier placement pursuant to section two thousand three hundred forty-nine of this chapter or placement with a company within a group of affiliated companies in conjunction with factors other than credit information as part of its renewal process;

(d) take an adverse action against a consumer solely because he or she does not have a credit card account, without consideration of any other applicable factor independent of credit information;

(e) consider an absence of credit information or an inability to calculate an insurance score in underwriting or rating personal insurance, unless the insurer does one of the following:

(1) treats the consumer as if the applicant or insured had neutral credit information, as defined by the insurer;

(2) excludes the use of credit information as a factor and uses only other underwriting criteria; or

(3) treats the consumer as otherwise approved by the superintendent, if the insurer presents information that such an absence or inability relates to the risk for the insurer;

(f) take an adverse action against a consumer based on credit information, unless an insurer obtains and uses a credit report issued or an insurance score calculated within ninety days from the date the policy is first written;

(g) use credit information unless at least once every thirty-six months, upon the request of a consumer or the consumer’s agent, the insurer shall re-underwrite and re-rate the policy based upon a current credit report or insurance score provided, however, that this shall not result in a premium increase for the insured. An insurer need not recalculate the insurance score or obtain the updated credit report of a consumer more frequently than once in a thirty-six-month period. Regardless of the requirements of this subsection:

(1) The insurer shall have the discretion to obtain current credit information upon any renewal, if consistent with its underwriting guidelines provided that such information may be used only to reduce premiums for the insured; and

(2) No insurer need obtain current credit information for an insured, despite the requirements of this subsection, if one of the following applies:

(A) The insured is in the most favorably-priced tier of the insurer, within a group of affiliated insurers; or

(B) Credit was not used for underwriting or rating such insured when the policy was initially written. However, the insurer shall have the discretion to use credit for underwriting or rating such insured upon renewal, if such use would reduce premiums for the insured;

(h) use any of the following as a negative factor in any insurance scoring methodology or in reviewing credit information for the purpose of underwriting or rating a policy of personal lines insurance:

(1) credit inquiries not initiated by the consumer or inquiries requested by the consumer for his or her own credit information;

(2) inquiries relating to insurance coverage, if so identified on a consumer’s credit report;

(3) collection accounts with a medical industry code, if so identified on the consumer’s credit report;

(4) multiple lender inquiries, if coded by the consumer reporting agency on the consumer’s credit report as being from the home mortgage industry and made within thirty days of one another, unless only one inquiry is considered; or

(5) multiple lender inquiries, if coded by the consumer reporting agency on the consumer’s credit report as being from the automobile lending industry and made within thirty days of one another, unless only one inquiry is considered.

  • 2804: Initial notification

An insurer writing personal lines insurance which uses credit information in underwriting or rating a consumer, shall disclose such fact to the consumer. The insurer shall provide the disclosure required under this section to any insured on new and renewal policies.

(a) The disclosure must be provided in a separate written document, which need not be provided in a separate mailing as another document as long as it is provided on a separate piece of paper, except that for new business it may be provided either in writing or in the same medium as the application for insurance.

(b) The disclosure must, in clear and specific language, comply with the following:

(1) inform the consumer that it may obtain credit information in connection with the application or renewal;

(2) give an explanation of insurance scoring;

(3) list typical items relative to a consumer’s credit history that could affect such score; and

(4) provide the name of the consumer reporting agency supplying the credit data used in determining the score.

(c) Use of one of the following example disclosure statements constitutes compliance with this section:

(1) “In connection with this insurance, we may review your credit report or obtain or use a credit-based insurance score based on information contained in that report. An insurance score uses information from your credit report to help predict how often you are likely to file claims and how expensive those claims will be. Typical items from a credit report that could affect a score include, but are not limited to, the following: payment history, number of revolving accounts, number of new accounts, the presence of collection accounts, bankruptcies and foreclosures. The information used to develop the insurance score comes from (insert name.)”; or

(2) Use of the following example disclosure statement for renewal business constitutes compliance with this section: “In connection with this insurance, we previously used a credit report or obtained or used a credit-based insurance score based on information contained in that report. We may obtain or use credit information again provided, however, that upon renewal such information may only be used to reduce e premiums. An insurance score uses information from your credit report to help predict how often you are likely to file claims and how expensive those claims will be. Typical items from a credit report that could affect a score include, but are not limited to, the following: payment history, number of revolving accounts, number of new accounts, the presence of collection accounts, bankruptcies and foreclosures. The information used to develop the insurance score comes from (insert name.)”.

(d) If a new business application is taken over the telephone, an oral disclosure may be provided by one of the following approaches:

(1) As described in subsections (a) through (c) of this section; or

(2) (A) By first disclosing the fact that the insurer may obtain credit information in connection with such application, as indicated in paragraph one of subsection (b) of this section. Use of the following example disclosure constitutes compliance with this provision: “In connection with this application for insurance, we may review your credit report or obtain or use a credit-based insurance score based on the information contained in that credit report.”; and

(B) If a policy is issued, by supplying the information required under paragraphs two, three and four of subsection (b) of this section. The disclosure must be provided in a separate written document, which need not be provided in a separate mailing as another document as long as it is provided on a separate piece of paper. Use of the following example disclosure constitutes compliance with this provision: “In connection with this insurance, we reviewed your credit report or obtained or used a credit-based insurance score based on information contained in that report. An insurance score uses information from your credit report to help predict how often you are likely to file claims and how expensive those claims will be. Typical items from a credit report that could affect a score include, but are not limited to, the following: payment history, number of revolving accounts, number of new accounts, the presence of collection accounts, bankruptcies and foreclosures. The information used to develop the insurance score comes from (insert name.)”.

If an insurer takes an adverse action based upon credit information, the insurer shall:

(a) provide notification to the consumer that an adverse action has been taken, in accordance with the requirements of the federal Fair Credit Reporting Act, 15 USC 1681m(a); and

(b) provide notification to the consumer explaining the reason for the adverse action. The reasons must be provided in sufficiently clear and specific language so that a person can identify the basis for the insurer’s decision to take an adverse action. Such notification shall include a description of up to four factors that were the primary influences of the adverse action. The use of generalized terms such as “poor credit history”, “poor credit rating”, or “poor insurance score” does not meet the explanation requirements of this subsection. Standardized credit explanations provided by consumer reporting agencies or other third party vendors are deemed to comply with this section.

  • 2806.  Filing

    (a) Insurers that use insurance scores to underwrite and rate risks must file their scoring models (or other scoring processes) with the superintendent. Any subsequent revision to the scoring models will require the insurer to file a summary of the revision with the superintendent within forty-five days. A third party may file scoring models on behalf of insurers. A filing that includes insurance scoring may include loss experience justifying the use of credit information.

    (b) Any filing relating to credit information filed and in the possession of the superintendent shall remain the property of the insurer and shall not be subject to any disclosure or production under article six or six-A of the public officers law or any other law of the state which authorizes or requires the superintendent to disclose or produce records to an outside party. This information is privileged information and is not discoverable or admissible as evidence in any legal action in any civil, criminal or administrative proceeding. The privilege created herein is a matter of substantive law of this state and is not merely a procedural matter governing civil or criminal procedures in the courts of this state and this information shall remain subject to all applicable statutory or common law privileges.

  1.  Sale of information by consumer reporting agency

    (a) No consumer reporting agency shall provide or sell data or lists that include any information that in whole or in part was submitted in conjunction with an insurance inquiry about a consumer’s credit information or a request for a credit report or insurance score. Such information includes, but is not limited to, the expiration dates of an insurance policy or any other information that may identify time periods during which a consumer’s insurance may expire and the terms and conditions of the consumer’s insurance coverage.

    (b) The restrictions provided in subsection (a) of this section do not apply to data or lists the consumer reporting agency supplies to the insurance agent or broker from whom information was received, the insurer on whose behalf such agent or broker acted, or such insurer’s affiliates or holding companies.

    (c) Nothing in this section shall be construed to restrict any insurer from being able to obtain a claims history report or a motor vehicle report.

SUMMARY

In general, State Fair Credit Reporting Acts, patterned in varying degrees after the Federal Fair Credit Reporting Act (15 U.S.C.A. §§ 1681 et seq.),  basically  regulate agencies engaged in the collection and dissemination to subscribers or clients of information relating to the financial credit or personal integrity of consumers.

In the State of New York, any insurer doing business that uses credit information to underwrite or rate risks for personal lines insurance is prohibited from denying a policy of personal lines insurance on the basis of credit information, without consideration of any other applicable underwriting factor that would be independent of credit information.

The insurer shall not use the available credit information to cancel or non renew a policy or increase an insured’s premium for personal lines insurance upon renewal

The statute clearly provides for a time period of ninety days from the date the policy is first written, within which the insurer must have obtained the credit report before initiating any   adverse action   against a consumer based on credit information.

An insurer, using credit information in underwriting or rating a consumer shall disclose to the consumer the fact that while  writing personal lines insurance,   he may obtain credit information for the purpose of new application or renewal, reveal the name of the consumer reporting agency. The Insurer shall also make a disclosure statement to that effect.

In the event of the insurer taking adverse action against the   consumer based on a credit report, the insurer shall under the statute provide notification to the consumer in accordance with provisions of Federal Fair Credit Reporting Act, while explaining the reasons for such an adverse action.

Lastly, the statute restricts the sale of credit information held by a consumer reporting agency, that in whole or in part was submitted in conjunction with an insurance inquiry about a consumer’s credit information or a request for a credit report.

Insurance Law, Article 28 regulates the use of Credit Information.   The following sections deal with the use of credit information in underwriting and rating for personal lines insurance and restrictions thereof.

Laws 2004, ch 215, §  2, eff April 23, 2005, provides as follows:

  • 2. This act shall take effect on the two hundred seventieth day after it shall have become a law and shall apply to policies issued and/or renewed on and after such date; provided that the superintendent of insurance shall promulgate rules and regulations necessary to effectuate the provisions of this act at least sixty days prior to such effective date.

NY CLS Ins §  2802  (2005)

  • 2802. Use of credit information

An insurer doing business in this state that uses credit information to underwrite or rate risks for personal lines insurance, shall not:

(a) use an insurance score that is calculated using income, gender, address, zip code, ethnic group, religion, marital status, or nationality of the consumer as a factor;

(b) deny a policy of personal lines insurance solely on the basis of credit information, without consideration of any other applicable underwriting factor independent of credit information, provided that an offer by an insurer to provide coverage by writing a policy through an affiliate insurer or a tier within the insurer shall not constitute a denial of a policy;

(c) use credit information to cancel or nonrenew a policy or increase an insured’s premium for personal lines insurance on renewal provided that nothing in this section shall be construed to prohibit an insurer from considering an insured’s tier placement pursuant to section two thousand three hundred forty-nine of this chapter or placement with a company within a group of affiliated companies in conjunction with factors other than credit information as part of its renewal process;

(d) take an adverse action against a consumer solely because he or she does not have a credit card account, without consideration of any other applicable factor independent of credit information;

(e) consider an absence of credit information or an inability to calculate an insurance score in underwriting or rating personal insurance, unless the insurer does one of the following:

(1) treats the consumer as if the applicant or insured had neutral credit information, as defined by the insurer;

(2) excludes the use of credit information as a factor and uses only other underwriting criteria; or

(3) treats the consumer as otherwise approved by the superintendent, if the insurer presents information that such an absence or inability relates to the risk for the insurer;

(f) take an adverse action against a consumer based on credit information, unless an insurer obtains and uses a credit report issued or an insurance score calculated within ninety days from the date the policy is first written;

(g) use credit information unless at least once every thirty-six months, upon the request of a consumer or the consumer’s agent, the insurer shall re-underwrite and re-rate the policy based upon a current credit report or insurance score provided, however, that this shall not result in a premium increase for the insured. An insurer need not recalculate the insurance score or obtain the updated credit report of a consumer more frequently than once in a thirty-six-month period. Regardless of the requirements of this subsection:

(1) The insurer shall have the discretion to obtain current credit information upon any renewal, if consistent with its underwriting guidelines provided that such information may be used only to reduce premiums for the insured; and

       (2) No insurer need obtain current credit information for an insured, despite the requirements of this subsection, if one of the following applies:

(A) The insured is in the most favorably-priced tier of the insurer, within a group of affiliated insurers; or

(B) Credit was not used for underwriting or rating such insured when the policy was initially written. However, the insurer shall have the discretion to use credit for underwriting or rating such insured upon renewal, if such use would reduce premiums for the insured;

(h) use any of the following as a negative factor in any insurance scoring methodology or in reviewing credit information for the purpose of underwriting or rating a policy of personal lines insurance:

(1) credit inquiries not initiated by the consumer or inquiries requested by the consumer for his or her own credit information;

(2) inquiries relating to insurance coverage, if so identified on a consumer’s credit report;

(3) collection accounts with a medical industry code, if so identified on the consumer’s credit report;

(4) multiple lender inquiries, if coded by the consumer reporting agency on the consumer’s credit report as being from the home mortgage industry and made within thirty days of one another, unless only one inquiry is considered; or

(5) multiple lender inquiries, if coded by the consumer reporting agency on the consumer’s credit report as being from the automobile lending industry and made within thirty days of one another, unless only one inquiry is considered.

  • 2804: Initial notification

An insurer writing personal lines insurance which uses credit information in underwriting or rating a consumer, shall disclose such fact to the consumer. The insurer shall provide the disclosure required under this section to any insured on new and renewal policies.

(a) The disclosure must be provided in a separate written document, which need not be provided in a separate mailing as another document as long as it is provided on a separate piece of paper, except that for new business it may be provided either in writing or in the same medium as the application for insurance.

(b) The disclosure must, in clear and specific language, comply with the following:

(1) inform the consumer that it may obtain credit information in connection with the application or renewal;

(2) give an explanation of insurance scoring;

(3) list typical items relative to a consumer’s credit history that could affect such score; and

(4) provide the name of the consumer reporting agency supplying the credit data used in determining the score.

(c) Use of one of the following example disclosure statements constitutes compliance with this section:

(1) “In connection with this insurance, we may review your credit report or obtain or use a credit-based insurance score based on information contained in that report. An insurance score uses information from your credit report to help predict how often you are likely to file claims and how expensive those claims will be. Typical items from a credit report that could affect a score include, but are not limited to, the following: payment history, number of revolving accounts, number of new accounts, the presence of collection accounts, bankruptcies and foreclosures. The information used to develop the insurance score comes from (insert name.)”; or

(2) Use of the following example disclosure statement for renewal business constitutes compliance with this section: “In connection with this insurance, we previously used a credit report or obtained or used a credit-based insurance score based on information contained in that report. We may obtain or use credit information again provided, however, that upon renewal such information may only be used to reduce e premiums. An insurance score uses information from your credit report to help predict how often you are likely to file claims and how expensive those claims will be. Typical items from a credit report that could affect a score include, but are not limited to, the following: payment history, number of revolving accounts, number of new accounts, the presence of collection accounts, bankruptcies and foreclosures. The information used to develop the insurance score comes from (insert name.)”.

(d) If a new business application is taken over the telephone, an oral disclosure may be provided by one of the following approaches:

(1) As described in subsections (a) through (c) of this section; or

(2) (A) By first disclosing the fact that the insurer may obtain credit information in connection with such application, as indicated in paragraph one of subsection (b) of this section. Use of the following example disclosure constitutes compliance with this provision: “In connection with this application for insurance, we may review your credit report or obtain or use a credit-based insurance score based on the information contained in that credit report.”; and

(B) If a policy is issued, by supplying the information required under paragraphs two, three and four of subsection (b) of this section. The disclosure must be provided in a separate written document, which need not be provided in a separate mailing as another document as long as it is provided on a separate piece of paper. Use of the following example disclosure constitutes compliance with this provision: “In connection with this insurance, we reviewed your credit report or obtained or used a credit-based insurance score based on information contained in that report. An insurance score uses information from your credit report to help predict how often you are likely to file claims and how expensive those claims will be. Typical items from a credit report that could affect a score include, but are not limited to, the following: payment history, number of revolving accounts, number of new accounts, the presence of collection accounts, bankruptcies and foreclosures. The information used to develop the insurance score comes from (insert name.)”.

If an insurer takes an adverse action based upon credit information, the insurer shall:

(a) provide notification to the consumer that an adverse action has been taken, in accordance with the requirements of the federal Fair Credit Reporting Act, 15 USC 1681m(a); and

(b) provide notification to the consumer explaining the reason for the adverse action. The reasons must be provided in sufficiently clear and specific language so that a person can identify the basis for the insurer’s decision to take an adverse action. Such notification shall include a description of up to four factors that were the primary influences of the adverse action. The use of generalized terms such as “poor credit history”, “poor credit rating”, or “poor insurance score” does not meet the explanation requirements of this subsection. Standardized credit explanations provided by consumer reporting agencies or other third party vendors are deemed to comply with this section.

  • 2806.  Filing

    (a) Insurers that use insurance scores to underwrite and rate risks must file their scoring models (or other scoring processes) with the superintendent. Any subsequent revision to the scoring models will require the insurer to file a summary of the revision with the superintendent within forty-five days. A third party may file scoring models on behalf of insurers. A filing that includes insurance scoring may include loss experience justifying the use of credit information.

    (b) Any filing relating to credit information filed and in the possession of the superintendent shall remain the property of the insurer and shall not be subject to any disclosure or production under article six or six-A of the public officers law or any other law of the state which authorizes or requires the superintendent to disclose or produce records to an outside party. This information is privileged information and is not discoverable or admissible as evidence in any legal action in any civil, criminal or administrative proceeding. The privilege created herein is a matter of substantive law of this state and is not merely a procedural matter governing civil or criminal procedures in the courts of this state and this information shall remain subject to all applicable statutory or common law privileges.

  1.  Sale of information by consumer reporting agency

    (a) No consumer reporting agency shall provide or sell data or lists that include any information that in whole or in part was submitted in conjunction with an insurance inquiry about a consumer’s credit information or a request for a credit report or insurance score. Such information includes, but is not limited to, the expiration dates of an insurance policy or any other information that may identify time periods during which a consumer’s insurance may expire and the terms and conditions of the consumer’s insurance coverage.

    (b) The restrictions provided in subsection (a) of this section do not apply to data or lists the consumer reporting agency supplies to the insurance agent or broker from whom information was received, the insurer on whose behalf such agent or broker acted, or such insurer’s affiliates or holding companies.

    (c) Nothing in this section shall be construed to restrict any insurer from being able to obtain a claims history report or a motor vehicle report.

Summary

In general, State Fair Credit Reporting Acts, patterned in varying degrees after the Federal Fair Credit Reporting Act (15 U.S.C.A. §§ 1681 et seq.),  basically  regulate agencies engaged in the collection and dissemination to subscribers or clients of information relating to the financial credit or personal integrity of consumers.

In the State of New York, any insurer doing business that uses credit information to underwrite or rate risks for personal lines insurance is prohibited from denying a policy of personal lines insurance on the basis of credit information, without consideration of any other applicable underwriting factor that would be independent of credit information.

The insurer shall not use the available credit information to cancel or non renew a policy or increase an insured’s premium for personal lines insurance upon renewal

The statute clearly provides for a time period of ninety days from the date the policy is first written, within which the insurer must have obtained the credit report before initiating any   adverse action    against a consumer based on credit information.

An insurer, using credit information in underwriting or rating a consumer shall disclose to the consumer the fact that while  writing personal lines insurance,   he may obtain credit information for the purpose of new application or renewal, reveal the name of the consumer reporting agency. The Insurer shall also make a disclosure statement to that effect.

In the event of the insurer taking adverse action against the   consumer based on a credit report, the insurer shall under the statute provide notification to the consumer in accordance with provisions of Federal Fair Credit Reporting Act, while explaining the reasons for such an adverse action.

Lastly, the statute restricts the sale of credit information held by a consumer reporting agency, that in whole or in part was submitted in conjunction with an insurance inquiry about a consumer’s credit information or a request for a credit report.