Chapter 11. Use of Credit History in Underwriting and Rate Making

During the 2002 Session, the General Assembly enacted House Bill 521 which became Ch. 580, Acts 2002.

With respect to homeowner's insurance, Ch. 580, Acts of 2002 prohibits an insurer from using credit history to underwrite or rate a risk or require a particular payment plan.

With respect to private passenger motor vehicle insurance, Ch. 580, Acts of 2002, prohibits an insurer from using credit history to underwrite a risk, increase a renewal premium, or require a particular payment plan and restricts the manner in which an insurer may use credit history to rate a new private passenger motor vehicle policy.

Implement Ch. 580, Acts of 2002;

Clarify the steps an insurer or insurance producer is required to take to determine if an applicant or insured has credit history after an initial inquiry fails to generate a credit report, credit score, or other credit history;

Codify the best price rule with respect to the use of credit criteria or a credit score in an insurer's rate-making standards; and

Require insurers that use credit history for rating purposes, with respect to private passenger motor vehicle insurance, to provide the Insurance Commissioner with the underlying information that the Insurance Commissioner needs to ensure that the insurers use the credit history in accordance with the standards for rating that currently exist in Maryland law.

This chapter does not apply to the use of a credit report or a credit score derived from a credit report, by an insurer in an insurance transaction that:

If an insurer refuses to underwrite after a consumer submits an application in response to a firm offer of insurance made in accordance with §B(1) of this regulation, the refusal to underwrite:

“Affiliated insurer” means an insurer that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another insurer.

“Consumer reporting agency” includes an insurer and any affiliate of an insurer that collects information that:

“Control” means the direct or indirect possession of the power to direct, or cause the direction of, the management and policies of an insurer, regardless of whether the power is exercised, by:

“Credit-based discount” means the application of a rate modification factor that is:

“Credit-based surcharge” means the application of a rate modification factor that is:

“Credit criterion” means information bearing on a particular aspect of an individual's credit history.

Credit History.

“Credit report” means credit history obtained from a consumer reporting agency other than an insurer or affiliate of an insurer described in §B(2) of this regulation.

“Credit score” means a score that is derived by utilizing data from an individual's credit history in an algorithm, computer program, model, or other process that reduces the data to a number or rating.

“Firm offer of insurance” has the meaning stated in §C of this regulation.

Homeowner's Insurance.

Motor Vehicle.

“Private passenger motor vehicle” means a motor vehicle that is used primarily for personal, family, or household purposes.

“Rate” includes:

Residential Property.

“Tier” means a category within a single insurer into which insureds with similar risk characteristics are placed for purposes of determining a premium rate.

Will be honored if the consumer is determined, based on information in a credit report on the consumer, to meet the specific criteria used to select the consumer for the offer; and

May be further conditioned on one or more of the following:

Providing or removing a discount or imposing or removing a surcharge;

Assigning the insured or applicant to a tier; or

Placing an applicant or insured with an affiliated insurer; or

Refuse to underwrite, cancel, refuse to renew, or increase the renewal premium based wholly or partly on the credit history of the applicant or insured, including the absence of or inability to determine credit history; or

Require a particular payment plan based wholly or partly on the credit history of the applicant or insured, including the absence of or inability to determine credit history.

The insurer uses credit history to rate new policies; and

The applicant may request a premium quotation that separately identifies the portion of the premium attributable to the applicant's credit history.

For each applicant of the insurer; or

In accordance with a written standard for determining when to obtain a credit report, credit score, or other credit history that meets the requirements of §B of this regulation.

Prohibit obtaining a credit report, credit score, or other credit history based wholly or partly on race, color, creed, sex, religion, national origin, place of residency, blindness, or any other physical handicap or disability of an applicant;

Prohibit obtaining a credit report, credit score, or other credit history for any arbitrary, capricious, or unfairly discriminatory reason;

Require the decision to obtain a credit report, credit score, or other credit history to be reasonably related to the insurer's economic and business purposes; and

Otherwise comply with Insurance Article, §27-501, Annotated Code of Maryland.

An insurer that submits a written standard to the Commissioner under §C of this regulation may, under Insurance Article, §27-501(h)(4), Annotated Code of Maryland, request a finding by the Commissioner that its written standard be considered a trade secret or confidential commercial information under General Provisions Article, §4-335, Annotated Code of Maryland.

A written standard that is the subject of a confidentiality request shall be considered confidential pending review by the Commissioner.

A finding that information submitted to the Commissioner under this chapter is a trade secret or confidential commercial information under General Provisions Article, §4-335, Annotated Code of Maryland:

If the Commissioner finds that a written standard is not a trade secret or confidential commercial information, the insurer that submitted the written standard may:

An insurer may not use a written standard that has been withdrawn.

Notify the applicant or insured that the initial inquiry failed to generate a credit report, credit score, or other credit history;

Verify the accuracy of:

Document in the appropriate file the notice to the applicant or insured and any response from the applicant or insured; and

Retain the documentation for at least 3 years after the date that the notice was provided.

Make a second attempt to obtain a credit report, credit score, or other credit history for the applicant or insured;

Document in the appropriate file the second attempt to obtain a credit report, credit score, or other credit history for the applicant or insured; and

Retain the documentation for at least 3 years after the date of the second attempt to obtain a credit report, credit score, or other credit history for the applicant or insured.

An insurer may cancel a policy if an applicant intentionally misrepresented information on an application to prevent the insurer from obtaining a credit report, credit score, or other credit history of the applicant.

It is prima facie evidence of an intentional misrepresentation if an applicant:

If an insurer uses credit criteria or a credit score as part of the insurer's rate-making standards, the credit criteria or credit score shall be established and used in a manner that:

If an insurer calculates a premium based wholly or partly on information contained in a credit report, credit score, or other credit history that the insurer knows is inaccurate or incomplete, the resulting rate is deemed to be:

An insurer that rates a new policy wholly or partly on the credit history of an applicant may not use the following factors in rating the policy:

With respect to a new policy, the 5-year limit under §C(1)(a) of this regulation shall be measured from the date of issuance of the policy, and may not be measured from the date that the insurer checks the credit history of the applicant.

After the initial rating of a policy, the 5-year limit under §C(1)(a) of this regulation shall be measured from the next renewal date of the policy, and may not be measured from the date that the insurer checks the credit history of the insured.

An insurer that rates a new policy based wholly or partly on the credit history of an applicant may, if actuarially justified, provide a credit-based discount or impose a credit-based surcharge.

If a group of affiliated insurers uses credit history wholly or partly as an eligibility factor for placement of an applicant with a particular affiliated insurer:

Provide to the applicant orally, in writing, or electronically:

Provide to the applicant an oral, written, or electronic notice of the applicant's right:

Review the credit history of an insured who was adversely impacted by the use of the insured's credit history at the initial rating of the policy:

Adjust the premium of an insured whose credit history was reviewed under §A(1) of this regulation to reflect any improvement in the insured's credit history; and

Disclose to the applicant at the time of issuance of a policy that the insurer is required to:

Except as provided in §C(2)(a) of this regulation, any adjustment to a premium required by a review of an insured's credit history shall take effect at the first renewal following the review of the insured's credit history.

If the improvement in the insured's credit history was due to the correction of inaccurate or incomplete information in the insured's credit report, the adjustment as a result of the improvement in the insured's credit history shall be retroactive to the previous renewal.

An insurer that is required to review an insured's credit history shall review the credit history prior to the expiration of the current term of the policy and in time for any improvement in the insured's credit history to be reflected in the renewal premium for the subsequent term of the policy.

In the insurer's filed rating manual, the rate-related underwriting rule that:

The underlying information, including statistical validation, that the insurer relied on for determining the credit criteria or ranges of credit scores that will result in:

The rating factor that will be applied to an insured who is placed in a particular tier, placed with a particular affiliated insurer, or provided a particular discount or surcharge;

The underlying information, including statistical validation, that the insurer relied on for determining the rating factor;

In the use of credit scoring, and at the request of the Commissioner, the algorithm, computer program, model, or other process that is used in determining a credit score; and

At the request of the Commissioner, the underlying information, including statistical validation, that was relied on to develop the algorithm, computer program, model, or other process that is used in determining a credit score.

The credit criteria or credit score is directly or indirectly derived from any information that the insurer is required to file with the Commissioner under §A of this regulation; and

The insurer fails to file the information with the Commissioner.