PARRIS
N. GLENDENING GOVERNOR KATHLEEN
KENNEDY TOWNSEND LIEUTENANT GOVERNOR STEVEN B. LARSEN COMMISSIONER DONNA B. IMHOFF DEPUTY COMMISSIONER ROBERT J. BECKER ASSOCIATE COMMISSIONER PROPERTY AND CASUALTY
Writer’s
Direct Dial: 410-468-2301
Facsimile
Number: 410-468-2306
e-mail:
rbecker@mdinsurance.state.md.us
To: All Personal
Lines Property and Casualty Insurers
Re: Use of Credit
History for Underwriting and Rating
Date: August 9,
2002
On June 24, 2002, the Maryland
Insurance Administration issued Bulletin 02-14, which dealt with the
implementation of Chapter 580, Acts of 2002 (House Bill 521). The purpose of this bulletin is to address
additional issues regarding the implementation of Chapter 580, Acts of 2002
that have arisen since the issuance of Bulletin 02-14. This bulletin supplements Bulletin 02-14,
which remains in effect except to the extent expressly stated in this bulletin.
Increase in Renewal Premium Based Wholly or Partly on Credit History
Chapter 580, Acts of 2002 states
that “with respect to private passenger motor vehicle insurance, an insurer may
not…increase the renewal premium based, in whole or in part, on the credit
history of the insured”. With respect
to implementing this provision, Bulletin 02-14 advised that “an insurer may not
increase a renewal premium based wholly or partly on credit history even if the
insurer does not increase the rate modification factor based on credit
history.” Bulletin 02-14 further
advised that an insurer must “file a rating rule that provides that, if the
insurer imposes a surcharge based wholly or partly on credit history at initial
rating, the insurer may not increase the dollar amount of the surcharge at
renewal.” The Maryland Insurance
Administration hereby withdraws the advice quoted in the two immediately
preceding sentences. An increase in a
renewal premium will not be considered to be based wholly or partly on credit
history unless it results from application of a rate modification factor
attributable to credit history at renewal of a policy that is greater than the
rate modification factor attributable to credit history that was applied at
initial rating of the policy.
Use of Credit History for Rating Private Passenger Motor Vehicle Risks - Standards Established by Chapter 580, Acts of 2002 – Application to Existing Book of Business
With respect to private passenger
motor vehicle insurance, Chapter 580, Acts of 2002 provides that an insurer
that rates a new policy based wholly or partly on credit history may not:
·
Provide a discount of more than 40% or impose a surcharge of more than
40% based on credit history; or
·
Use the following factors to rate a policy: the absence of or inability
to obtain credit history, the number of credit inquiries, or any factor that is
more than 5 years old.
Insurers must revise their rating plans to comply with the 40% limitation on discounts and surcharges. In addition, insurers, or credit scoring modelers on behalf of insurers, must revise credit scoring models to exclude the prohibited factors.
With respect to existing policies of
private passenger motor vehicle insurance, an insurer that currently uses
credit history to rate policies must re-rate the existing policies in
accordance with the standards established by Chapter 580, Acts of 2002 at the
first renewal on or after October 1, 2002.
This means that any existing discounts or surcharges must be brought
into compliance with the 40% limitation.
It also means that new credit scores must be obtained that have been
computed using credit scoring models that exclude the prohibited factors.
Notice Required by §27-605 of the Insurance Article
It is anticipated that application
of rating plans that have been revised to comply with Chapter 580, Acts of 2002
will result in premium increases for some policyholders. Since the revision of rating plans will involve
reclassification of policyholders, a notice of premium increase is required by
§27-605 of the Insurance Article. With
respect to an increase in premium caused by application of an insurer’s revised
rating plan, the insurer may satisfy the actual reason requirement in §27-605
of the Insurance Article by use of the following explanation:
Effective
October 1, 2002, Chapter 580, Acts of 2002 places restrictions on the ability
of an insurance company to use your credit history to determine the amount of
your motor vehicle insurance premium.
These restrictions were enacted because the use of credit history to
price policies had an adverse impact on certain policyholders. To comply with the new restrictions, (ABC
Insurance Company) has revised its rating plan. As a result, premiums paid by policyholders will change – some
policyholders’ premiums will decrease while other policyholders’ premiums
initially will increase. Your premium
has increased. The increase is not due
to any change in your credit history.
After this initial rating under our new rating plan, your premium cannot
be increased in the future due to your credit history.
The above explanation may be used only to cover the portion of a premium increase caused by application of an insurer’s revised rating plan. If a policyholder’s premium has further increased for any other reason - such as an accident or violation - the insurer must provide a separate explanation for that portion of the increase. In addition, insurers must ensure that a premium increase caused by application of an insurer’s revised rating plan does not include any increase due to a change in a policyholder’s credit history. If a policyholder receives an increase in premium and credit history was used to rate the policy, the burden is on the insurer to demonstrate that the increase was not caused wholly or partly by a change in the policyholder’s credit history.
If you have any further questions
regarding the interpretation and implementation of Chapter 580, acts of 2002,
please contact Robert Becker, Associate Commissioner, Property and Casualty, at
410-468-2301.
_________________________________
Robert J. Becker
Associate Commissioner
Property and Casualty