DEPARTMENT OF INSURANCE
Office of the Commissioner
REGULATORY IMPLEMENTING ORDER
906 Use of Credit Information
I. SUMMARY OF THE EVIDENCE AND INFORMATION SUBMITTED
The Department of Insurance (Department) gave notice in the Delaware Register of Regulations at 21 DE Reg. 546 (01/01/2018) of the proposed repeal of existing Regulation 906, Use of Credit Information, effective on May 1, 2018. The Department's internal docket number is DOI Docket No. 3690-2017.
HS1 for HB 80 replaced then existing Chapter 83 of the Delaware Insurance Code with a new chapter. The new chapter was signed into law on August 1, 2017, and it becomes effective on May 1, 2018. The new chapter sets forth the permissible uses of credit information in rating personal insurance, and prohibits insurance companies from increasing rates on current customers solely for having reached the age of 75 or above or for having a change in marital status due to the death of a spouse.
Regulation 906 is now outdated as it lacks many of the requirements in the new statute. Additionally, HS1 for HB 80 is sufficiently prescriptive to not warrant implementing regulations. Accordingly, the Department proposed to repeal existing Regulation 906. The repeal would be effective on May 1, 2018.
The Department did not hold a public hearing on the proposed repeal. The Department accepted written comments, suggestions, briefs, and compilations of data or other materials concerning the proposed amendment until the 31st day of January, 2018, which was thirty days from the date of publication.
The Department received comments from the Governor's Advisory Council for Exceptional Citizens (GACEC) in support of the proposed repeal. A copy of GACEC's comments may be obtained by contacting the Department.
II. FINDINGS OF FACTS
The Commissioner finds that it is appropriate to repeal 18 DE Admin. Code 906 for the reasons set forth above and in the proposal. Additionally, the Department received no adverse comments on the proposed repeal.
III. DECISION TO REPEAL THE REGULATION
For the foregoing reasons, the Commissioner concludes that it is appropriate to repeal 18 DE Admin. Code 906, as discussed in the above Findings of Fact.
V. EFFECTIVE DATE OF ORDER
The actions hereinabove referred to were taken by the Commissioner pursuant to 18 Del.C. §311 and Chapter 50 on February 15, 2018. The effective date of this Order shall be ten (10) days from the date this Order is published in the Delaware Register of Regulations, and the effective date of the repeal will be May 1, 2018.
IT IS SO ORDERED.
The 15th day of February, 2018.
Commissioner, Delaware Department of Insurance
906 Use of Credit Information
This regulation is adopted by the Commissioner pursuant to the authority granted by 18 Del.C. §§ 311, 2501, 2304(15)(c), and 2312, and promulgated in accordance with the Delaware Administrative Procedures Act, 29 Del.C. Chapter 101.
This regulation shall apply to all insurers offering automobile, motorcycle, boat and personal watercraft, snowmobiles and other recreational vehicles, homeowners, mobile-homeowners, manufactured homeowners and non-commercial dwelling fire insurance policies for personal or family protection. This regulation shall not apply to any line of commercial insurance.
The purposes of this regulation are:
3.1 To prohibit insurers from engaging in unfair discrimination in the offering or granting of insurance due to the grouping of risks based on criteria which are not actuarially supported and shown to be relevant to risk.
3.2 To prohibit insurers from engaging in unfair discrimination in the cancellation or non-renewal of insurance coverage based on criteria which are not actuarially supported and shown to be relevant to risk or experience.
3.3 To assure that applicants are given notice when consumer reports will be requested and reviewed in connection with their eligibility for insurance coverage and/or their tier or level of premium payment.
3.4 To prohibit the practice of assigning an applicant to a premium level based solely on the applicant's credit rating or credit score.
3.5 To prohibit the practice of using a policyholder's credit rating or credit score except as provided in 18 Del.C. §§8301 through 8304.
3.6 To assure that the consumer has adequate relief from any adverse action taken by an insurer through the use of credit scoring.
3.7 To establish a procedure for policyholders to request, on an annual basis, a recalculation of their insurance score based on a current credit report.
“Adverse action” has the meaning given that term in the Fair Credit Reporting Act, 15 U.S.C. sec. 1681 et seq. (referred to in this regulation as “the FCRA”). An adverse action includes but is not limited to the following:
“Applicant" shall mean an applicant for insurance coverage but shall not include persons receiving a quote for premium that would be due under a policy of insurance, provided however, that such insurance is not ultimately applied for and that the process for making and delivering such quotes is not used as a means for denying coverage on the basis of a credit score in violation of this regulation.
“Commissioner” shall mean the Insurance Commissioner of the State of Delaware, or any person designated by the Commissioner to enforce the provisions of this regulation or any related statute or regulation.
"Consumer" shall mean applicants or policyholders.
“Consumer report” means any written, oral, or other communication of any information by a consumer reporting agency (as defined in the FCRA) bearing on a consumer's credit worthiness, credit standing, or credit capacity, which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for personal lines automobile or homeowner insurance to be used primarily for person, family, or household purposes. Consumer report shall not include motor vehicle reports or claims history reports or any other report that is not credit related.
“Credit score” means any alpha, numeric and/or alpha-numeric rating or classification of any person based on information contained in said person’s consumer report created by an insurer or any person, firm or entity for use by an insurer.
“Document” or “public record” shall have the same meaning as described in 29 Del.C. §10002(d) and 18 Del.C. §§320, 321.
“Insurance score” shall have the same meaning as “credit score.”
“Policyholder” shall mean person or persons insured under a policy of insurance.
5.1 No credit score shall be valid if the age of the consumer report upon which it is based is greater than two years from the date of its first use for an individual application, or if the consumer report or credit score utilizes in any manner, factors which include any or all of race, color, creed, sex, religion, national origin, place of residency, marital status, nature of employment, physical disability, or any similar category prohibited by federal or state law.
5.2 Each insurer proposing to use an insurance score as part of its rating or underwriting criteria shall file with the Commissioner, as part of its rate filings required pursuant to 18 Del.C. Ch. 25, such supporting models, algorithms, actuarial and statistical data and reports sufficient, in the discretion of the Commissioner, to permit the Commissioner to determine:
5.2.1 That the use of such credit report or score shall not unfairly discriminate or assign a consumer to a class or tier based on criteria which are not actuarially supported and shown to be relevant to risk or experience, or
5.2.2 That the use of such credit report or score shall not be the sole basis upon which the insurer denies coverage or sets a premium or rate for insurance coverage for an applicant without consideration of other underwriting or rating factors, or
5.2.3 That, with respect to any policy currently in force, the insurer's insurance scoring methodology does not result in any adverse underwriting decision based in any way upon changes in a policyholder's credit information or consumer report.
5.3 No insurer shall be permitted to use the services of a third party to develop a consumer report or credit score unless the third party shall, without qualification, consent to provide any information, documents, reports (except for consumer reports which may not be disclosed), actuarial and/or statistical bases or models, or other such information required by the Commissioner as part of the insurer’s rate approval process.
5.4 In rating a policy or assigning a consumer to a premium level or tier, no insurer shall be permitted to consider the consumer report or score of any person other than the named applicant or policyholder or person(s) who have an insurable interest to be covered under the policy. In the case of homeowner’s coverage, no insurer shall be permitted to deny, penalize, impose a higher rate or take any action adverse or detrimental to an applicant based solely on the credit score of a spouse who has no title or ownership interest in the property to be insured and is not a named applicant.
5.5 No insurer, or entity from which the insurer may obtain credit scoring information, shall use credit or consumer reports in any manner prohibited by law.
5.6 No insurer shall be permitted to use obsolete information which shall be defined as follows:
5.6.1 Bankruptcies which, from date of the adjudication of the most recent bankruptcy, antedate the report by more than 10 years;
5.6.2 Suits and judgments which, from date of entry, antedate the report by more than 7 years or until the governing statute of limitations has expired, whichever is the longer period;
5.6.3 Paid tax liens which, from date of payment, antedate the report by more than 7 years;
5.6.4 Accounts placed for collection or charged to profit and loss which antedate the report by more than 7 years;
5.6.5 Records of arrest, indictment, or conviction of crime which, from date of disposition, release, or parole, antedate the report by more than 7 years; and
5.6.6 Any other adverse item of information which antedates the report by more than 7 years.
5.7 The following factors shall not be used by an insurer or by any entity retained by the insurer for the purposes of generating a credit score for underwriting, tier placement or rating purposes:
5.7.1 Information that is disputed by the consumer and has been identified by the consumer reporting agency and coded as such, if the use of such disputed information would result in an adverse action;
5.7.2 Information that has been identified by the consumer reporting agency as related to insurance inquiries and/or non-consumer initiated inquiries and coded as such;
5.7.3 Information that has been identified by the consumer reporting agency as related to collection accounts with a medical industry code;
5.7.4 Information that includes multiple lender inquiries, if coded by the consumer reporting agency as being from the home mortgage industry and made within 30 days of one another, unless only one inquiry is considered.
5.7.5 Information that includes multiple lender inquires, if coded by the consumer reporting agency as being from the automobile lending industry and made within 30 days of one another, unless only one inquiry is considered.
5.7.6 The total available line of credit, however, an insurer may consider the total amount of outstanding debt in relation to the total available line of credit.
5.8 If a consumer has no available credit history or has insufficient credit history to develop a credit score, the consumer must be underwritten and rated in accordance with the remaining actuarial principles and standards of practice set forth in the appropriate rate filing that are exclusive of the credit score. However, an insurer may consider insufficient credit history or no available credit history in setting a premium or rate, or underwriting an insurance policy for an applicant, to the extent such use is actuarially justified and consistent with the rate filing in the office of the Commissioner.
5.9 No insurer shall, by underwriting standards or practices, use a consumer’s credit score inconsistent with or in violation of this regulation.
6.1 If an insurer uses credit information in underwriting or rating a consumer, the insurer shall make the following disclosures to the consumer:
6.1.1 Either on the insurance application or at the time the insurance application is taken, the insurer shall disclose to the applicant that it may obtain credit information on the applicant, other persons residing in the applicant's home, or other persons whose credit information may affect the underwriting or rating of the policy in connection with such application. Such disclosure shall be either written or provided to an applicant in the same medium as the application for insurance. The 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 (credit) (insurance) score based on the information contained in that credit report. We may use a third party in connection with the development of your (credit) (insurance) score.”
6.1.2 Either on the insurance application or at the time the insurance application is taken, the insurer shall inform the applicant that, if the application is approved and the applicant becomes a policyholder, he or she has the right to an insurance score review on an annual basis based on a new consumer report, in accordance with the procedures set forth in section 8 of this Regulation. The notice shall state that the review will be conducted for the sole purpose of determining whether the consumer’s credit information would lead to a reduction in insurance premiums and will not be used for any other purpose, including an increase in premiums. The use of the following example disclosure statement constitutes compliance with this section: “If we do use a credit based score, you will have the right on an annual basis to request that we obtain a current credit report for you and determine whether use of the new credit report would result in a decrease in your insurance premiums. If the new credit report that we receive would result in a decrease in your insurance premiums, we will make that reduction. If the new credit information would not reduce your insurance premiums, the credit report will not be used to impact your premiums in any way.” This paragraph does not apply if an insurer's filed rating plan does not use any credit information for the purpose of rating renewals, including any residual effect from the use of credit at initial underwriting.
6.1.3 On an annual basis, the insurer shall inform its policyholders of their right to have their credit information reviewed to determine whether the use of the current credit report would result in a lower premium, in accordance with the procedures set forth in section 8 of this Regulation. This notification shall be prominently included in at least 18 point type in the renewal notification. The notification shall be accompanied by a form that the policyholder must complete and send to the insured to request that the credit report be obtained and reviewed. The notification shall inform the policyholder that the policyholder must mail the request form within two weeks of the date of mailing of the renewal notification by the insurer in order for the re-rating to occur in time for a premium adjustment to be made for the upcoming policy period. The notification shall also inform the policyholder that they must comply with the renewal notice's requirements regarding the payment amount and due date regardless of whether they choose to request a review of their credit report, and that any decrease in premium as a result of the credit review will be effective as of the upcoming renewal date provided in the renewal notice. This subsection does not apply to any renewal for which the insurer’s filed rating plan does not use any credit information, including residual effect from the use of credit information at initial underwriting. An insurer that is exempt from this subsection shall inform its policyholder of the exemption and the reason for the exemption in the policyholder’s renewal notification.
6.2 A notice denying an application for insurance shall, to the extent that the insurer’s action is based on information contained in a consumer report relating to the applicant and/or other named person, contain the following:
6.2.1 The name, address and toll free number of the institutional source from whom the insurer obtained the credit information;
6.2.2 A summary of the most significant reasons for the adverse action that relate to the applicant's credit history or to the credit factors of the credit score. The reasons need not exceed four, shall be specific and shall identify the information associated with each reason. The notice shall be sufficiently clear and specific that an applicant of reasonable intelligence can identify the basis for the insurer’s decision without making further inquiry. For the purpose of the summary, the use of a generalized term such as “poor credit history,” “poor credit rating,” or “poor credit score” does not meet the requirement of a sufficiently clear and specific summary, however standardized credit explanations provided by consumer reporting agencies or other third party vendors that satisfy the requirements of this section are deemed to comply with this section.
6.2.3 A statement advising the applicant that, if the applicant wishes to inquire further about the credit information on which the refusal is based and obtain a free copy of the "consumer report," the applicant may do so by mailing a written request to the insurer, or such other party as the insurer shall identify in the notice, no more than thirty days after the date on which the notice of refusal was mailed to the applicant.
6.2.4 A statement that the consumer reporting agency that provided the information upon which the credit score was based did not make the decision to take the adverse action and is unable to provide the applicant the specific reasons why the adverse action was taken.
6.3 If the applicant submits the written notification required under section 6.2.3, the refusal shall not become effective until thirty days after the accuracy of the credit information, which the applicant has questioned and on which the refusal was based, has been verified and communicated to the applicant. Such verification shall be deemed to have been made upon completion of the investigation of the credit information which the applicant has questioned and on which the refusal was based. The applicant must cooperate in the investigation of the credit information, including responding to any communication submitted by, or on behalf of, the insurer or credit reporting agency no more than ten days after the date on which such communication subsequent to the notice required under section 6.2.3 was mailed to the applicant. If the applicant fails to cooperate in the investigation of the credit information, the insurer may, after providing a minimum of fifteen days' written notice to the applicant, terminate such investigation and may refuse to insure the applicant.
6.4 If the applicant or insured, after receipt of a notice under this section, and pursuant to procedures established under the FCRA, obtains changes, modifications or corrections to his/her credit information maintained by one or more credit reporting agencies, the insured shall notify the insurer who shall recalculate or obtain a new credit score. In that case, the provisions of section 7.2 shall apply to any adjustments to be made to the insured’s premium.
7.1 When an insurer uses credit histories or credit scores for the purpose of rating, if the insurer receives notice of corrected information affecting the credit history or the credit factors of the credit score of a consumer from the consumer reporting agency of the insurer, the insurer shall correct the consumer’s credit score or obtain a corrected credit score or credit history, as appropriate, based on the corrected information.
7.2 When an insurer has taken an adverse action against a consumer on the basis of the consumer’s credit history or the credit factors of the consumer’s credit score, if the insurer subsequently makes or obtains a correction or change under section 6.4 or 7.1, the insurer shall determine the difference between the premium paid by the consumer based on the prior credit history or credit score and the premium based on the current history or score. If the policy period is 12 months or more, the difference shall be determined for the most recent 12 months. If the policy period is less than 12 months, the difference shall be determined for the current period of the policy. If the difference is in favor of the consumer, the insurer shall credit or refund the difference to the consumer. If the difference is in favor of the insurer, the insurer may charge the difference to the consumer or collect the difference from the consumer.
7.3 A consumer, upon written request to an insurer, shall have a right to seek review by the insurer of its use of a credit score in the event a consumer's credit report is adversely affected by extraordinary personal circumstances.
7.3.1 Extraordinary personal circumstance is defined as serious illness or injury, involuntary unemployment, divorce, identity theft, and involuntary interruption of alimony or support payments. An insurer may elect to extend this definition to consider an extraordinary personal circumstance not listed in this section. In no event is an insurer required to review repeated events or events the insurer reviewed previously as an extraordinary personal circumstance.
7.3.2 An insurer may require that a consumer provide sufficient documentation to establish the existence and duration of such extraordinary personal circumstance.
7.3.3 An insurer may elect to eliminate the credit score from consideration in such instance and rely its other underwriting and rating guidelines, may assign a neutral credit score or may elect to establish such procedural guidelines as will allow the insurer to consider such requests in a consistent manner.
7.3.4 An insurer will not be considered out of compliance with any law or rule relating to underwriting, rating or rate filing as a result of granting an exception under this section.
8.1 Any policyholder whose credit report has been used by his/her insurer for the purpose of rating renewals or initial underwriting and who wishes to have a current credit report reviewed by his/her insurer to determine whether the current report will result in an improvement in the policyholder's insurance score must make the request to his/her insurer using the form provided pursuant to paragraph 6.1.3 of this Regulation. The policyholder must mail the completed request form within two weeks of the date the insurer mailed the notice and form required by paragraph 6.1.3.
8.2 After receiving notice from a policyholder that he/she is requesting that the applicable credit reports be obtained and reviewed for the purpose of improving the insurance score applicable to the policy, the insurer shall obtain the current credit information and recalculate the insurance score for the policyholder to determine whether the credit information will lower the policyholder’s premium. The policyholder’s premium adjustment, if he or she is entitled to one, shall be effective as of the renewal date provided in the renewal offer that accompanies the policyholder's notification of the request for re-rating, as described in paragraph 6.1.3 of this Regulation.
8.3 If the policyholder’s premium is adjusted pursuant to Section 8.2, the insurer shall notify the policyholder of the premium adjustment within 90 days of the insurer’s receipt of the policyholder’s request for a new credit report.
8.4 If the credit report would result in no change or an increase in the premium or in any adverse action, the insurer shall take no further action regarding the credit report except that the policyholder’s next notice of insurance renewal shall inform the policyholder that the review was conducted and that it did not result in any changes to the premium or policy.
8.5 Sections 8.1 through 8.4 do not apply to any renewal for which the insurer’s filed rating plan does not use any credit information, including any residual effect from the use of credit information at initial underwriting.
9.1 Any insurer that elects to use credit scoring to determine, in whole or in part, the premium to be paid by the insured or the tier or class of risk to which the insured shall be assigned, shall be deemed to have done so under the provisions of 18 Del.C. Ch. 25.
9.2 No insurer shall implement credit scoring for rate making or underwriting purposes without first having obtained the approval of the Commissioner as part of a rate filing under 18 Del.C. Ch. 25. Policies and renewal notices issued on or before September 1, 2003, in which credit information was used in the underwriting or rating of the policy shall be deemed valid for the term thereof but not for any renewal thereunder in the absence of compliance with this regulation.
9.3 No insurer shall alter or modify the approved tier or classification structure or change the premiums applicable to any such tier or classification system without having first obtained the Commissioner’s approval to do so under 18 Del.C. Ch. 25.
9.4 When an insurer denies a policy, evidence of the notice of denial shall be retained by the insurer and a record of the insurance score, related notice and correspondence with the applicant shall be maintained by the insurer and/or by the appropriate vendor (source of the credit score) pursuant to the insurer’s agreement with such vendor for a minimum of three years from the date of notice to the applicant.
9.5 An insurer shall indemnify, defend, and hold agents harmless from and against all liability, fees, and costs arising out of or relating to the actions, errors, or omissions of an insurer who obtains or uses credit information and/or credit scores from an independent source, provided that the agent follows the instructions of or procedures established by the insurer and complies with any applicable law or regulation. Nothing in this section shall be construed to provide a consumer or other insured with a cause of action that does not exist in the absence of this section.
10.1 Any document, report, model or other supporting information filed with the Commissioner, irrespective of the format or media in which it is contained, shall be considered proprietary or trade secret and subject to the confidentiality provisions of 18 Del.C. §321(g) and/or, upon the request of the insurer or owner of the document, 29 Del.C. §10002(d)(2). Where an insurer or third party is required to file proprietary or trade secret insurance scoring algorithms, models, documents or supporting information as part of its filed rates, the insurer or third party may elect to segregate such materials from the remainder of its rate filing by filing such materials separately in a sealed envelope or container. Materials filed in this manner shall remain segregated from the publicly accessible portions of the rate filing for so long as these materials are on file with the Department, or until the insurer or third party notifies the Department that such materials are no longer proprietary or trade secret. In the event there is a dispute with respect to the confidentiality of a document, the Commissioner shall make the final determination of whether any part or the whole of a disputed document shall be given confidential treatment.
If any provision of this Regulation or the application of any such provision to and person or circumstance shall be held invalid the remainder of such provisions, and the application of such provision to any person or circumstance other than those as to which it is held invalid, shall not be affected.
This regulation shall not create a cause of action for any person or entity, other than the Delaware Insurance Commissioner, against an insurer or its representative based upon a violation of 18 Del.C. §2304(15)(c). In the same manner, nothing in this regulation shall establish a defense for any party to any cause of action based upon a violation of 18 Del.C. §2304(15)(c).
These regulations shall be effective on January 1, 2008, with the exception of subsections 6.1.2 and 6.1.3, which shall take effect on April 1, 2008.