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You are here: Home . rules . 2003 . 1201-059
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Subchapter U. Use of Credit Information or Credit Scores

28 TAC §5.9941

The Texas Department of Insurance proposes amendments to Subchapter U, §5.9941, pursuant to Insurance Code Article 21.49-2U, regarding the allowable differences in rates charged by insurers due solely to differences in credit scores. In general, Article 21.49-2U provides certain requirements pertaining to the use of credit information and credit scoring by insurers in Texas for underwriting or rating certain personal insurance policies. Article 21.49-2U applies to insurers authorized to write property and casualty insurance in this state that write certain types of 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.

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 differences in credit scores. The proposed amendments to §5.9941 establish an allowable percentage difference in rates an insurer may charge due solely to credit scoring if the difference in rates is based on sound actuarial principles and fully supported by data filed with the department. Section 5.9941 was adopted on November 10, 2003 and became effective on November 30, 2003. Prior to the adoption of §5.9941, the Texas Department of Insurance received numerous comments from members of the legislature, the public and insurers on proposed §5.9941. Many comments were received concerning the appropriate allowable differences in rates charged by insurers due solely to differences in credit scores. Some commenters suggested that the allowable difference be a dollar amount; most other commenters requested that a percentage amount be set by the Commissioner. After thorough consideration of the statute, comments received and legislative history, the Texas Department of Insurance is proposing an amendment to establish a rate difference due solely to the use of credit scoring that cannot be greater than +/- 10% from what would have been charged had credit scoring not been used. The amendment further provides that if an insurer uses or proposes to use credit scoring to rate personal insurance policies and that the rate difference due solely to credit scoring is greater than +/-10%, the insurer must request and justify a variance to support its proposed rating structure. Amendments to §5.9941 are necessary to ensure that insurance consumers are charged premiums that are reasonable, fair, and related to their risk profile while minimizing market disruption. The proposed amendments will further promote stability in the market and promote an increase in consumer choices while promoting a competitive environment. Based on public, legislative and indust ry comments, the department believes that it is good public policy to set some type of limitation on the allowable differences in rates. The department further believes that to avoid market disruption and to provide stability, insurers must request and justify a variance to use a rating structure that exceeds the +/-10% limitation. This would mitigate rate increases where no rate increases would have occurred absent the adoption of §5.9941. The department will continue to require that the allowable differences be based on sound actuarial principles, fully supported by data filed with the department.

The department will consider the adoption of amendments to §5.9941 in a public hearing under Docket Number 2583, scheduled for 9:30 a.m. on January 7, 2004, in Room 100 of the William P. Hobby, Jr. 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 section 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 rule. 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 proposed section is in effect, the public benefit anticipated as a result of the proposed section will be that consumers will not be charged rates, due solely to the use of credit scoring, that vary more than +/-10% that are not fully supported by actuarial information that is reasonably related to actual or anticipated loss experience. Requiring insurers to request and justify a variance to use rates charged due solely to use of credit scoring that exceed +/-10% from what they would have been in the absence of credit scoring minimizes the possibility that consumers will realize rate increases and prevents market disruption. The costs of compliance with the proposed section for large, small and micro-businesses result entirely from the legislative enactment of Senate Bill 14, 78th Legislature, and not as a result of the administration or enforcement of the rules. The proposed section may not be waived for insurers that qualify as small or micro-businesses because the requirements of the section 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 January 12, 2004, 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 amendments are proposed under Insurance Code Article 21.49-2U and §36.001. The 78th 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 13(b) requires the commissioner to adopt rules regarding the allowable differences in rates charged by insurers due solely to differences 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:

Rule Statute

§5.9941 Insurance Code Article 21.49-2U

§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 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 submitted to [filed with] the department and must meet the following requirements:

(1) The rate differences due solely to the use of credit scoring cannot be greater than +/- 10% from what would have been charged had credit scoring not been used.

(2) Notwithstanding paragraph (1) of this subsection, if an insurer uses or proposes to use a credit scoring rating structure for rating personal insurance policies in Texas that has a rate differential greater than +/-10%, the insurer must request and justify a variance for the credit scoring rating structure. The purpose of requiring a request and justification for a variance is to minimize rate increases that would have otherwise occurred as a result of the application of paragraph (1) of this subsection.

(3) The request for a variance in paragraph (2) of this subsection shall include actuarial support and any other information required by the Commissioner , including the numbers of policyholders and associated premiums that would be affected by any rate differences.

(b) Requests for variances [Filings] under this section must be submitted to the Texas Department of Insurance no later than March 1, 2004 to the 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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