SB2107 96TH GENERAL ASSEMBLY

LRB096 03619 RPM 13647 b

96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
SB2107

Introduced 2/20/2009, by Sen. Mattie Hunter

SYNOPSIS AS INTRODUCED:

See Index

Amends the Use of Credit Information in Personal Insurance Act. In the provision concerning scope, includes non-commercial farm owners insurance policies and personal umbrella policies to the definition of "personal insurance". Makes changes in the provision concerning definitions. Makes changes in the provision concerning the use of credit information. Provides that an insurer authorized to do business in this State shall use credit information only for the purpose of initially underwriting a consumer. Provides that an insurer authorized to do business in this State that uses credit information to underwrite risks (instead of underwrite or rate risks) shall not take an adverse action against a consumer based on credit information unless and until certain requirements are met. Provides that an insurer must file language in its underwriting guidelines acknowledging the requirement to review and consider extraordinary life events. Provides that an insurer shall re-underwrite the consumer within 30 days if it is determined through any dispute resolution process (instead of the dispute resolution process set forth in the federal Fair Credit Reporting Act) that the credit information of a consumer was incorrect. Provides that scoring models filed by third parties are considered as filed by insurers and subject to the requirements of the Act. Provides that any insurer that used credit information or insurance scores for rating purposes prior to the effective date of the Act must file with the Director for approval an acceptable plan for removing use of credit information or insurance scores for rating purposes. Makes other changes. Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning insurance.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Use of Credit Information in Personal Insurance Act is amended by changing Sections 10, 15, 20, 22, 25, 30, 40, and 45 as follows:

(215 ILCS 157/10)

Sec. 10. Scope. This Act applies to personal insurance and not to commercial insurance. For purposes of this Act, "personal insurance" means private passenger automobile, homeowners, motorcycle, mobile-homeowners and non-commercial dwelling fire insurance policies, non-commercial farm owners insurance policies, and boat, personal watercraft, snowmobile, and recreational vehicle, and personal umbrella polices. Such policies must be individually underwritten for personal, family, or household use. No other type of insurance shall be included as personal insurance for the purpose of this Act.

(Source: P.A. 93-114, eff. 10-1-03.)

(215 ILCS 157/15)

Sec. 15. Definitions. For the purposes of this Act, these defined words have the following meanings:

"Adverse action" means a denial or cancellation within the first 60 days of initial coverage, of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for, in connection with the underwriting of personal insurance.

"Affiliate" means any company that controls, is controlled by, or is under common control with another company.

"Affiliated group of insurers" means any group of insurers under common control that, whether by means of underwriting or rating, are used to place an applicant in a specific company within the affiliated group.

"Applicant" means an individual who has applied for the first time to be covered by a personal insurance policy with an insurer.

"Consumer" means an insured or an applicant for a personal insurance policy whose credit information is used or whose insurance score is calculated in the initial underwriting or rating of a personal insurance policy.

"Consumer reporting agency" means any person that, for monetary fees or dues or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports or credit or insurance scores to third parties.

"Credit information" means any credit-related information derived from a credit report, found on a credit report itself, or provided on an application for personal insurance. Information that is not credit-related shall not be considered "credit information," regardless of whether it is contained in a credit report or in an application or is used to calculate an insurance score.

"Credit report" means any written, oral, or other communication of information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, or credit capacity, that is used or expected to be used or collected in whole or in part for the purpose of serving as a factor to determine personal insurance premiums, eligibility for coverage of personal insurance , or tier placement.

"Director" means the Director of the Division of Insurance within the Department of Financial and Professional Regulation.

"Division Department" means the Division Department of Insurance of the Department of Financial and Professional Regulation.

"Domestic partner" means an individual in a domestic partnership or civil union as recognized by a state or local law or ordinance.

"Insurance score" means a number or rating that is derived from an algorithm, computer application, model, or other process that is based in whole or in part on credit information for the purposes of predicting the future insurance loss exposure of an individual applicant or insured.

"Insurer" means any person, firm, corporation, association, or aggregation of persons, including affiliated groups of insurers, doing or proposing to do an insurance business and subject to the insurance supervisory authority of, or to liquidation, rehabilitation, reorganization, or conservation by, the commissioner of insurance or equivalent insurance supervisory official of a state.

"Underwriting" means only the act of accepting, rejecting, or canceling within the first 60 days a policy of personal insurance and shall not include any activities related to determination of coverages, limits of insurance, or payment plans available to a consumer; or to activities related to rating a policy of personal insurance, including, but not limited to, calculation of rates, placement of consumers into tiers, or placement of consumers into a specific insurer within an affiliated group of insurers based in whole or in part on rates, coverages, or limits of insurance.

(Source: P.A. 93-114, eff. 10-1-03.)

(215 ILCS 157/20)

Sec. 20. Use of credit information. An insurer authorized to do business in this State shall use credit information only for the purpose of initially underwriting a consumer, as defined and prescribed in this Act. An insurer authorized to do business in this State that uses credit information to underwrite or rate risks shall not:

(1) Use credit information or an insurance score that is based on or calculated using income, gender, address, ethnic group, religion, marital status, or nationality of the consumer as a factor.

(2) Deny or reject a policy of personal insurance or , cancel, or nonrenew a policy of personal insurance within the first 60 days of initial coverage solely on the basis of credit information, without consideration of any other adverse risk-related applicable underwriting factor independent of credit information and not expressly prohibited by item (1). An insurer shall not be considered to have denied or , cancelled, or nonrenewed a policy if coverage is available through an affiliate. Making coverage available through an affiliate shall not be used as a proxy for charging a consumer different rates, coverages, limits of insurance, or payment plans based on a consumer's credit information.

(3) Base a consumer's an insured's renewal rates, coverages, limits of insurance, or premium for personal insurance solely upon credit information, including credit information used in any insurance scoring model used for rating without consideration of any other applicable factor independent of credit information. An insurer shall not be considered to have based rates solely on credit information if coverage is available in a different tier of the same insurer. Offering coverage through an affiliate or placing a consumer into a different tier shall not be used as a proxy for charging a consumer different rates, coverages, limits of insurance, or premium payment plans because of a consumer's credit information.

(4) 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.

(5) 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:

(A) Treats the consumer as otherwise filed with the Department, if the insurer presents information that such an absence or inability relates to the risk for the insurer and submits a filing certification form signed by an officer for the insurer certifying that such treatment is actuarially justified.

(B) Treats the consumer as if the applicant or insured had neutral credit information, as defined by the insurer.

(C) Excludes the use of credit information as a factor and uses only other underwriting criteria.

(6) Take an adverse action against a consumer based on credit information, unless and until an insurer obtains and uses a credit report issued or an insurance score calculated within 90 days from the date the policy is first written and completes all of the following requirements: or renewal is issued.

(A) notifies the consumer, in writing, that the insurer has obtained the consumer's credit information;

(B) informs the consumer, in writing, what information from the consumer's credit information would trigger a potentially adverse action;

(C) offers the consumer an opportunity to respond within 30 days after the potentially adverse credit information; and

(D) considers the consumer's response prior to taking an adverse action; if the insurer decides to take an adverse action, the insurer must communicate that fact and its rationale for doing so in writing.

(7) Use credit information unless not later than every 36 months following the last time that the insurer obtained current credit information for the insured, the insurer recalculates the insurance score or obtains an updated credit report. Regardless of the other requirements of this Section:

(A) At annual renewal, 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. An insurer need not recalculate the insurance score or obtain the updated credit report of a consumer more frequently than once in a 12-month period.

(B) The insurer shall have the discretion to obtain current credit information upon any renewal before the expiration of 36 months, if consistent with its underwriting guidelines.

(C) An insurer is not required to obtain current credit information for an insured, despite the requirements of subitem (A) of item (7) of this Section if one of the following applies:

(a) The insurer is treating the consumer as otherwise filed with the Department.

(b) The insured is in the most favorably-priced tier of the insurer, within a group of affiliated insurers. However, the insurer shall have the discretion to order credit information, if consistent with its underwriting guidelines.

(c) Credit was not used for underwriting or rating the insured when the policy was initially written. However, the insurer shall have the discretion to use credit for underwriting or rating the insured upon renewal, if consistent with its underwriting guidelines.

(d) The insurer re-evaluates the insured beginning no later than 36 months after inception and thereafter based upon other underwriting or rating factors, excluding credit information.

(7) (8) Use 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 insurance:

(A) Credit inquiries not initiated by the consumer or inquiries requested by the consumer for his or her own credit information.

(B) Inquiries relating to insurance coverage, if so identified on a consumer's credit report or if properly identified by the consumer as such.

(C) Collection accounts with a medical industry code, if so identified on the consumer's credit report or if properly identified by the consumer as such.

(D) 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 30 days of one another, unless only one inquiry is considered, or if properly identified by the consumer as such.

(E) 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 30 days of one another, unless only one inquiry is considered, or if properly identified by the consumer as such.

(F) Home mortgage foreclosures.

(G) Lack of a home mortgage, if the reason for the lack of a mortgage is that the consumer has paid off a home mortgage in full.

(H) Lack of an automobile loan, if the reason for the lack of an automobile loan is that the consumer has paid off an automobile loan in full.

(I) Existence of a student loan used to pay expenses associated with post-secondary education.

(J) Any credit information that the consumer is disputing or has disputed or any credit information for a dispute that is under review by the credit reporting agency or creditor.

(K) Information related to the financing of a primary residence if the consumer occupies the premises and is not in default on the financing agreement.

(8) Use credit information or an insurance score to determine the coverage or coverages or policy or coverage limits available to the consumer or to limit or restrict the payment plans available to the consumer.

(9) Consider for underwriting purposes the credit information of any of the following in addition to the credit information of the named insured; if any of the following are listed as or considered to be named insureds under the policy and the insurer considers the credit information of all named insureds under the policy, then the insurer shall consider only the credit information of the named insured whose credit information results in the most favorable underwriting treatment of the consumer:

(A) An individual who is not the named insured under the policy.

(B) The spouse or other family member of the named insured.

(C) A domestic partner who resides in the same household of the named insured.

(10) Use different credit or insurance scoring methods or models to underwrite the same named insured under various personal lines insurance policies with the insurer, unless the insurer underwrites the named insured using only the most favorable credit or insurance scoring results for all of the named insured's personal lines policies.

(Source: P.A. 93-114, eff. 10-1-03; 93-477, eff. 10-1-03.)

(215 ILCS 157/22)

Sec. 22. Extraordinary life events.

(a) An insurer authorized to do business in this State that uses credit information or an insurance score to underwrite or rate risks shall review and consider an exception to its credit-related underwriting treatment of an applicant or insured the risk score based upon extraordinary life events after receiving a written and signed notification from the applicant or insured explaining how the applicant or insured believes the extraordinary life event adversely impacts the applicant's or insured's credit information or insurance risk score.

(b) For the purposes of this Section, "extraordinary life event" includes, but is not limited to, means the following:

(1) a catastrophic illness or injury to an applicant or insured or an immediate family member of an applicant or insured;

(2) the death of a spouse, child, or parent of an applicant or insured;

(3) involuntary loss of employment for a period of 3 months or more by an applicant or insured;

(4) identity theft of an applicant or insured; or

(5) dissolution of marriage of an applicant or insured; or .

(6) military deployment of an applicant or insured.

(c) An insurer must file language in its underwriting guidelines acknowledging the requirement to review and consider extraordinary life events.

(Source: P.A. 94-245, eff. 7-1-06.)

(215 ILCS 157/25)

Sec. 25. Dispute resolution and error correction. If it is determined through any the dispute resolution process, including, but not limited to, the process set forth in the federal Fair Credit Reporting Act, 15 U.S.C. 1681i(a)(5), that the credit information of a consumer current insured was incorrect or incomplete and if the insurer receives notice of that determination from either the consumer reporting agency or from the consumer insured, the insurer shall re-underwrite and re-rate the consumer within 30 days after receiving the notice. After re-underwriting or re-rating the consumer insured, the insurer shall make any adjustments necessary to ensure that the incorrect or incomplete credit information no longer adversely affects the consumer , consistent with its underwriting and rating guidelines. If an insurer determines that the insured has overpaid premium, the insurer shall refund to the insured the amount of overpayment calculated back to the shorter of either the last 12 months of coverage or the actual policy period.

(Source: P.A. 93-114, eff. 10-1-03.)

(215 ILCS 157/30)

Sec. 30. Initial notification.

(a) If an insurer writing personal insurance uses credit information in underwriting or rating a consumer, the insurer or its agent shall disclose, either on the insurance application or at the time the insurance application is taken, that it may obtain credit information in connection with the application. The disclosure shall be either written or provided to an applicant in the same medium as the application for insurance. The insurer need not provide the disclosure statement required under this Section to any insured on a renewal policy, if the consumer has previously been provided a disclosure statement.

(b) Use of the following example disclosure statement constitutes compliance with this Section: "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. We may use a third party in connection with the development of your insurance score. Negative information obtained from your credit report or credit information may cause you to be denied or rejected for insurance coverage, or have your insurance canceled within the first 60 days of coverage of a new policy. Accordingly, you should be aware of the contents of your credit report so that you can review it periodically. Federal law gives you the right to dispute inaccurate or incomplete information on your credit report.".

(Source: P.A. 93-114, eff. 10-1-03.)

(215 ILCS 157/40)

Sec. 40. Filing.

(a) Insurers that use credit information or insurance scores to underwrite consumers and rate risks must file their credit-related underwriting guidelines and credit or insurance scoring models (or other scoring processes) with the Division Department. A third party may file scoring models on behalf of insurers. However, for purposes of this Act, scoring models filed by third parties are considered as filed by insurers and subject to the same requirements under this Act. All credit-related filings, including scoring models, must be complete, concise, and easily comprehensible by both the Division and consumers. Insurers may not file underwriting guidelines or scoring models that contain unnecessarily complex algorithms or an unreasonable number of pages in an attempt to circumvent the requirement that such filings be complete, concise, and easily comprehensible by both the Division and consumers. A filing that includes insurance scoring may include loss experience justifying the use of credit information.

(b) Any insurer that used credit information or insurance scores for rating purposes prior to the effective date of this Act must immediately file with the Director for approval an acceptable plan, methodology, or process, including, but not limited to, revised underwriting guidelines, rates, and rating rules, for removing use of credit information or insurance scores for rating purposes. No plan, methodology, process, underwriting guidelines, rates, or rating rules shall in any way be calculated using or based on credit information or insurance scores, including, but not limited to, charging consumers different rates based on their prior credit information or insurance scores, placing consumers into tiers or affiliated insurers based on prior credit information or insurance scores, or providing discounts or surcharges based on credit information or insurance scores.

(c) In any filing that includes use of credit information or insurance scoring, an insurer may include loss experience and actuarial information justifying the use of credit information, or must make such information available to the Division upon request.

(d) In order that consumers may understand the various ways credit information and insurance scores affect insurance acceptance, rejection, and underwriting, all underwriting guideline and scoring model filings (b) Any filing relating to credit information is deemed to be public information and not is considered to be a trade secret under the Illinois Trade Secrets Act.

(Source: P.A. 93-114, eff. 10-1-03.)

(215 ILCS 157/45)

Sec. 45. Enforcement; rates not regulated.

(a) The Division Department shall enforce the provisions of this Act pursuant to the enforcement powers granted to it under the Illinois Insurance Code (215 ILCS 5/1 et seq.). The Division Department may promulgate rules necessary to enforce and administer this Act.

(b) Except for the powers granted under subsection (b) of Section 40, nothing Nothing contained in this Act shall be construed to empower the Division Department to regulate or set the rates of any insurer pursuant to this Act.

(Source: P.A. 93-114, eff. 10-1-03.)

Section 99. Effective date. This Act takes effect upon becoming law.