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You are here: Home . rules . 2004 . 0621-059
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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 §5.9941, regarding the allowable differences in rates charged by insurers due solely to differences in credit scores. In general, Insurance Code 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. The department proposed an amendment to §5.9941 on December 12, 2003 . A public hearing was held on January 7, 2004 where many comments were received from insurers, legislators, and members of the public. That proposed credit scoring amendment was withdrawn by operation of law on June 12, 2004 in accordance with TEX. GOV´T CODE §2001.027. After further evaluation of that proposed amendment, the department believes substantive changes need to be made to include additional requirements regarding the use of rates charged by insurers due solely to differences in credit scores.

After further consideration of the statute, comments received and legislative history, the department 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 proposes to use credit scoring to rate personal insurance policies and if the rate difference due solely to credit scoring is greater than +/-10%, the insurer must request and justify an allowable difference in rates and may not use the proposed rate difference until it is permitted by the department. The insurer´s request must include actuarial support and information required by the Commissioner. An insurer can reference the Filings Made Easy Guide for information on actuarial support.

The proposed amendments to §5.9941 are necessary to ensure that insurance consumers are charged premiums that are reasonable, fair, and related to their risk profiles 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. 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 minimize market disruption and to provide stability, insurers must request and justify a difference in rates that exceeds the +/-10% limitation and this must be permitted by the department before an insurer may charge such a rate. This would assure that any rate increases due to a difference in rates greater than +/-10% are fully supported and justified.

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% unless they are fully supported by actuarial information that is reasonably related to actual or anticipated loss experience and are permitted by the department. Requiring insurers to request and justify differences in rates charged due to the use of credit scoring minimizes the possibility that consumers will realize unjustified rate increases and minimizes 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, 78 th Legislature, Regular Session, and not as a result of the administration or enforcement of the rules. Based upon the cost of labor per hour, there will be no difference in the cost of compliance between a large and small business as a result of the proposal. There is no disproportionate economic impact on small or micro-businesses. 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 August 2, 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 . Any request for a public hearing should be submitted separately to the Office of the Chief Clerk.

The amendments are proposed under Insurance Code Article 21.49-2U and §36.001. The 78 th Legislature, Regular Session, 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: 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 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 proposes 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 an allowable difference in rates for its proposed credit scoring rating structure. The request for a rate differential shall include actuarial support and any information required by the Commissioner, including the numbers of policyholders and associated premiums that would be affected by the rate differential. For a definition of "actuarial support," insurers may refer to the Filings Made Easy Guide. The Filings Made Easy Guide may be obtained from the TDI website at www.tdi.state.tx.us or by request from the Texas Department of Insurance, Property and Casualty Intake Unit, Mail Code 104-3B, P.O. Box 14910, Austin, TX 78714-9104.

(3) An insurer may not use a rate differential greater than +/-10% until it is permitted by the department.

(4) An insurer that proposes a rate differential that is not greater than +/-10% is subject to the filing requirements of article 5.13-2, 5.101 or 5.142 of the Insurance Code, whichever is applicable.

(b) A request for a rate differential greater than +/-10% filed [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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