Scoring Legislation Reaches Iowa Governor’s Desk

Iowa is the first state this year to pass credit-based insurance scoring legislation based on the National Conference of Insurance Legislators (NCOIL) model act. The governor was expected to sign the legislation.

“By adopting language that closely followed the NCOIL model act, the bill (SB 2257) was able to gain widespread support,” said Ann Weber, regional manager and senior counsel for the Property Casualty Insurers Association of America (PCI). “The original version of the bill differed radically from the NCOIL model. Provisions removed included a section that required insurers to disclose if credit was a factor, along with every other factor used, if an insurer denied, canceled or nonrenewed a policy. Another provision that was removed would have required an insurer to disclose the cost increase associated with the use of credit information, if that information adversely affected an insured’s rate. These provisions would have been unworkable and caused confusion within the marketplace. However, in the final version of the bill we were able to achieve a compromise that is very close to the NCOIL model.”

Although some provisions were removed, the legislation that passed reportedly contained an important deviation from the NCOIL model.

Based on the NCOIL model, insurers have three options regarding the treatment of consumers that have limited or no credit history. Insurers can choose to not use this information or treat no credit or thin credit as a neutral factor. In addition, the model allows insurers to consider the absence of credit or a thin credit file if the insurer provides the insurance commissioner with evidence of the relationship between absence of credit or thin credit and the risk of loss. SB 2257 excludes the provision that allows insurers to use credit information if the insurer provides the insurance commissioner with evidence of the relationship between an absence of credit history or a very limited, or ‘thin’ credit history and the risk of loss.

“While we supported the bill, we were disappointed that information that can help insurers develop a more complete picture of the risk of loss will be excluded. Including all of the options is important because they provide flexibility and permit consumers who present more risk to be charged appropriately,” noted Weber.

Since its adoption by NCOIL in November of 2002, the model act, or some form of the act, has been adopted as a regulation or enacted into law in 16 states.

“In Iowa, as in other states, the NCOIL model served as a viable compromise that contains solid consumer protections while preserving insurers’ ability to use this important underwriting and rating information,” added Weber.