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You are here: Home . rules . 2003 . 0908A-059
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SUBCHAPTER U. USE OF CREDIT INFORMATION OR CREDIT SCORES

28 TAC §§5.9940 & 5.9941

The Texas Department of Insurance proposes new subchapter U, §§5.9940 and 5.9941, concerning the use of credit information or credit scoring in certain personal lines of insurance. The proposed sections require disclosure by an insurer or its agents to its customers concerning whether credit information will be obtained and used as part of an insurance credit scoring process and specify how an insurer may vary its rates due solely to credit scoring. This proposal is necessary to implement Article 3, Use of Credit Scoring, of Senate Bill 14 enacted by the 78 th Legislature. Article 3 amends Chapter 21 of the Insurance Code by adding Article 21.49-2U. In general, Article 21.49-2U provides certain regulations pertaining to the use of credit information and credit scoring by insurers in Texas for underwriting or rating personal insurance policies. Article 21.49-2U applies to all insurers authorized to write property and casualty insurance in this state that write personal insurance coverage and use credit information or credit reports for the underwriting or rating of that coverage. However, Article 21.49-2U does not apply to farm mutual insurance companies or eligible surplus lines insurers. Section 7(d) of Article 21.49-2U requires an insurer or its agents to disclose to its customers whether credit information will be obtained on the applicant or insured or any other member of the applicant´s or insured´s household and used as part of the insurance credit scoring process. If credit information is obtained or used, subsection (d) also requires an insurer to disclose the name of each person on whom credit information was obtained or used and how each person´s credit information was used to underwrite or rate a policy. In addition, subsection (d) requires insurers or their agents to provide the disclosure on a form promulgated by the commissioner. Proposed §5.9940 allows insurers to use a disclosure form provided by the department or another form if it complies with all requirements of this section and is filed with the Texas Department of Insurance.

Article 21.49-2U, Section 13(b) requires the commissioner to adopt rules regarding the allowable differences in rates charged by insurers due solely to the difference in credit scores. Proposed §5.9941 provides for differences in rates an insurer may charge due solely to credit scoring if the differences in rates are based on sound actuarial principles and supported by data filed with the department. The proposed section will ensure that consumers are charged premiums that are related to their risk profile and will promote a competitive environment and minimize market disruption. The proposed section will promote stability in the market and promote an increase in consumer choices.

The department will consider the adoption of proposed §§5.9940 and 5.9941 in a public hearing under Docket Number 2573, scheduled for 9:30 a.m. on October 22, 2003 , in Room 100 of the William P. Hobby, J. State Office Building, 333 Guadalupe Street , Austin , Texas .

Marilyn Hamilton, associate commissioner, Property and Casualty Group, has determined that for each year of the first five years the proposed sections will be in effect, there will be no fiscal impact to state and local governments as a result of the enforcement or administration of the rules. There will be no measurable effect on local employment or the local economy as a result of the proposal.

Ms. Hamilton has determined that for each year

of the first five years the sections are in effect, the public benefit anticipated as a result of the proposed sections will be that consumers will not be charged rates, due solely to the use of credit scoring, that are not based on sound actuarial principles and supported by data filed with the department. Additionally, the applicants for personal insurance and insureds will benefit from required disclosure of whether insurers intend to obtain credit information or are using credit information as part of the insurance credit scoring process. The disclosures provided by insurers will, in turn, enable consumers to be more informed regarding the use of credit information in the underwriting and rating of personal insurance. Personal insurance markets tend to function more efficiently when consumers have greater access to information relating to how insurers underwrite and rate. The costs of compliance with the proposed sections for large, small and micro-businesses result entirely from the legislative enactment of Article 21.49-2U of Senate Bill 14, 78 th Legislature, and not as a result of the administration or enforcement of the rules. The proposed sections may not be waived for insurers that qualify as small or micro-businesses because the requirements of these sections are prescribed by statute, and the statute does not provide for an exemption.

To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on October 20, 2003 , to Gene C. Jarmon, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box 149104 , Austin , Texas 78714-9104 . An additional copy of the comment must be simultaneously submitted to Marilyn Hamilton, Associate Commissioner, Property & Casualty Group, MC 104-PC, Texas Department of Insurance, P. O. Box 149104 , Austin , Texas 78714-9104 .

The new sections are proposed under Insurance Code Article 21.49-2U and §36.001. The 78 th Legislature enacted Senate Bill 14, which added Article 21.49-2U. Article 21.49-2U, Section 13(a) authorizes the commissioner to adopt rules as necessary to implement the article. Article 21.49-2U, Section 7(d) requires the commissioner to promulgate a disclosure form. Article 21.49-2U, Section 13(b) requires the commissioner to adopt rules regarding the allowable differences in rates charged by insurers due solely to the difference in credit scores. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state .

The following statute is affected by this proposal: Insurance Code Article 21.49-U

§5.9940. Disclosure Form Required Concerning Use of Credit Information.

(a) This subchapter applies to an insurer that writes personal insurance coverage and uses credit information or credit reports for the underwriting or rating of that coverage.

(b) The definitions adopted under Insurance Code Article 21.49-2U apply to this subchapter.

(c) An insurer subject to this subchapter or its agents shall issue a disclosure form indicating whether credit information pertaining to the applicant or insured or other household member(s) will be obtained and used as part of the insurance credit scoring process.

(d) An insurer may use a disclosure form provided by the department or another form if it complies with all requirements of this section and is filed with the Texas Department of Insurance. A disclosure form may be obtained from the department´s website at www.tdi.state.tx.us or from the Automobile/Homeowners Section, Mail Code 104-1A, Texas Department of Insurance 333 Guadalupe, P.O. Box 149104 Austin , Texas 78714-9104 .

(e) The written disclosure shall:

(1) contain the full name and address of the applicant or insured;

(2) contain the name, address and telephone number (toll-free if available) of the insurer;

(3) contain the full name(s) of any other household member(s) whose credit information will be obtained and used;

(4) contain a statement indicating that if credit information is used, the insurer shall provide more detailed information concerning how the credit information was used to underwrite or rate the policy;

(5) be printed in reasonably conspicuous type;

(6) be provided by the insurer or the agent electronically, by U.S. mail or by hand delivery;

(7) be provided to the applicant with the application or immediately upon receipt of the application, but no later than ten days after receipt of the application;

(8) be provided to insureds at renewal if credit information will be obtained and used as part of the credit scoring process; and

(9) be written in English and at the option of the insurer, may be printed in Spanish or in another appropriate language.

§5.9941. Differences in Rates Charged Due Solely to Difference in Credit Scores.

(a) An insurer may vary its rates charged to applicants or insureds for personal insurance policies by percentage amounts due solely to credit scoring. The differences in rates charged due solely to credit scoring shall be based on sound actuarial principles and supported by data filed with the department.

(b) Filings under this section must be submitted to the Texas Department of Insurance, Property & Casualty Intake Unit, Mail Code 104-3B, P.O. Box 149104, Austin, Texas 78714-9104 or to the Texas Department of Insurance, Property & Casualty Intake Unit, 333 Guadalupe, Austin, Texas 78701.



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