Enrolled Act, Senate Bill 0178

First Regular Session 113th General Assembly (2003)

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SENATE ENROLLED ACT No. 178

AN ACT to amend the Indiana Code concerning insurance.

Be it enacted by the General Assembly of the State of Indiana:

    SECTION 1. IC 27-2-21 IS ADDED TO THE INDIANA CODE AS A NEW CHAPTER TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2003]:
     Chapter 21. Use of Credit Information
    Sec. 1. As used in this chapter, "adverse action" means:
        (1) a denial or cancellation of;
        (2) an increase in a charge for; or
        (3) a reduction or other adverse or unfavorable change in the terms of coverage or amount of;
insurance in connection with the underwriting of a personal insurance policy.
    Sec. 2. As used in this chapter, "affiliate" means a company that controls, is controlled by, or is under common control with another company.
    Sec. 3. As used in this chapter, "applicant" means an individual who has applied with an insurer for coverage under a personal insurance policy.
    Sec. 4. As used in this chapter, "commissioner" refers to the insurance commissioner appointed under IC 27-1-1-2.
    Sec. 5. As used in this chapter, "consumer" means an:
        (1) insured whose:
            (A) credit information is used; or

            (B) insurance score is calculated;
        in the underwriting or rating of a personal insurance policy; or
        (2) applicant for a personal insurance policy.
    Sec. 6. As used in this chapter, "consumer reporting agency" means a person that, for a monetary fee or dues or on a cooperative nonprofit basis, regularly engages in the practice of assembling or evaluating consumer credit information or other information concerning consumers for the purpose of furnishing consumer reports to third parties.
    Sec. 7. As used in this chapter, "credit information" means credit related information:
        (1) derived from a credit report;
        (2) found on a credit report; or
        (3) provided on an application for a personal insurance policy.
The term does not include information that is not credit related, regardless of whether the information is contained in a credit report or in an application or is used to calculate an insurance score.
    Sec. 8. As used in this chapter, "credit report" means a written, an oral, or another communication of information by a consumer reporting agency concerning a consumer's creditworthiness, credit standing, or credit capacity that is used or expected to be used or collected as a factor to determine personal insurance policy premiums, eligibility for coverage, or tier placement.
    Sec. 9. As used in this chapter, "department" refers to the department of insurance created by IC 27-1-1-1.
    Sec. 10. As used in this chapter, "insurance producer" has the meaning set forth in IC 27-1-15.6-2(7).
    Sec. 11. As used in this chapter, "insurance score" means a number or rating that is derived from an algorithm, computer application, model, or other process that is based on credit information for the purpose of predicting the future insurance loss exposure of an individual consumer.
    Sec. 12. As used in this chapter, "insured" means an individual entitled to coverage under a personal insurance policy.
    Sec. 13. As used in this chapter, "insurer" refers to an insurer (as defined in IC 27-1-2-3) that issues a personal insurance policy.
    Sec. 14. As used in this chapter, "personal insurance policy" means a policy that:
        (1) provides one (1) or more of the kinds of insurance described in Class 2 or Class 3 of IC 27-1-5-1; and
        (2) is underwritten on an individual basis for personal, family, or household use.
    Sec. 15. This chapter does not apply to commercial insurance.
    Sec. 16. An insurer that uses credit information to underwrite or rate risks shall not do the following:
        (1) Use an insurance score that is calculated using income, gender, address, ZIP code, ethnic group, religion, marital status, or nationality of the consumer as a factor.
        (2) Deny, cancel, or decline to renew a personal insurance policy solely on the basis of credit information.
        (3) Base an insured's renewal rate for a personal insurance policy solely on credit information.
        (4) Take an adverse action against a consumer solely because the consumer does not have a credit card account.
        (5) Consider an absence of credit information or an inability to calculate an insurance score in underwriting or rating a personal insurance policy, unless the insurer does one (1) of the following:
            (A) Presents to the commissioner information that the absence or inability relates to the risk for the insurer and treats the consumer as approved by the commissioner.
            (B) Treats the consumer as if the consumer had neutral credit information, as defined by the insurer.
        (6) Take an adverse action against a consumer based on credit information unless the insurer obtains and uses:
            (A) a credit report issued; or
            (B) an insurance score calculated;
        not more than ninety (90) days before the date the personal insurance policy is first written or the renewal is issued.
        (7) Use credit information unless the insurer recalculates the insurance score or obtains an updated credit report at least every thirty-six (36) months. However, the following apply:
            (A) At annual renewal, upon the request of an insured or the insured's agent, the insurer shall re-underwrite and re-rate the personal insurance policy based on a current credit report or insurance score unless one (1) of the following applies:
                (i) The insurer's treatment of the consumer is otherwise approved by the commissioner.
                (ii) The insured is in the most favorably priced tier of the insurer, within a group of affiliated insurers.
                (iii) Credit information was not used for underwriting or
rating the insured when the personal insurance policy was initially written.
                (iv) The insurer reevaluates the insured at least every thirty-six (36) months after a personal insurance policy is issued based on underwriting or rating factors other than credit information.
            This clause does not require an insurer to recalculate an insurance score or obtain an updated credit report of a consumer more frequently than one (1) time in a twelve (12) month period.
            (B) An insurer may obtain current credit information upon the renewal of a personal insurance policy when renewal occurs more frequently than every thirty-six (36) months if consistent with the insurer's underwriting guidelines.
        (8) Use the following as a negative factor in an insurance scoring methodology or in reviewing credit information for the purpose of underwriting or rating a personal insurance policy:
            (A) A credit inquiry:
                (i) not initiated by the consumer; or
                (ii) requested by the consumer for the consumer's own credit information.
            (B) A credit inquiry relating to insurance coverage.
            (C) A collection account with a medical industry code on the consumer's credit report.
            (D) Multiple lender inquiries:
                (i) coded by the consumer reporting agency on the consumer's credit report as being from the home mortgage industry; and
                (ii) made within thirty (30) days of one another.
            (E) Multiple lender inquiries:
                (i) coded by the consumer reporting agency on the consumer's credit report as being from the automobile lending industry; and
                (ii) made within thirty (30) days of one another.
    Sec. 17. (a) If:
        (1) a determination is made through the dispute resolution process set forth in the federal Fair Credit Reporting Act, 15 U.S.C. 1681i(a)(5), that the credit information of a current insured was incorrect or incomplete; and
        (2) the insurer receives notice of the determination from the consumer reporting agency or the insured;
the insurer shall re-underwrite and re-rate the insured not more than thirty (30) days after receiving the notice.
    (b) After an insurer re-underwrites or re-rates an insured as described in subsection (a), the insurer shall:
        (1) make necessary adjustments, consistent with the insurer's underwriting and rating guidelines; and
        (2) if the insurer determines that the insured has overpaid a premium, refund to the insured the amount of overpayment calculated back to the shorter of the:
            (A) immediately preceding twelve (12) month period of coverage; or
            (B) actual policy period.
    Sec. 18. (a) If an insurer uses credit information in underwriting or rating a consumer, the insurer or the insurer's agent shall disclose, either on the insurance application or at the time the insurance application is taken, that the insurer may obtain credit information in connection with the application. The disclosure must be:
        (1) written; or
        (2) provided to the consumer in the same medium as the application for insurance.
The insurer is not required to provide the disclosure statement required under this section to an insured on a renewal policy if the insured has previously been provided a disclosure statement.
    (b) Use of the following sample 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 insurance score based on the information contained in that credit report. We may use a third party in connection with the development of your insurance score.".
    Sec. 19. (a) If an insurer takes an adverse action based on credit information, the insurer shall:
        (1) provide notice to the consumer that an adverse action has been taken, in accordance with the requirements of the federal Fair Credit Reporting Act, 15 U.S.C. 1681m(a); and
        (2) provide notice to the consumer explaining the reason for the adverse action.
    (b) The reason provided under subsection (a)(2) must be provided in sufficiently clear and specific language so that an individual can identify the basis for the insurer's decision to take an adverse action. The notice must include a description of all factors up to four (4) primary factors that were the primary
influences of the adverse action. The use of generalized terms such as "poor credit history", "poor credit rating", or "poor insurance score" does not meet requirements of this subsection. A standardized credit explanation provided by a consumer reporting agency or other third party vendor meets the requirements of this section.
    Sec. 20. (a) An insurer that uses an insurance score to underwrite and rate risks shall file the insurer's scoring models or other scoring processes with the department.
    (b) A third party may file a scoring model or scoring process on behalf of an insurer.
    (c) A filing that includes insurance scoring may include loss experience justifying the use of credit information.
    (d) A filing related to credit information is confidential.
    Sec. 21. (a) An insurer shall indemnify and defend an insurance producer and hold an insurance producer harmless from and against liability, fees, and costs arising out of or related to the actions, errors, or omissions of the insurance producer relating to a use of credit information if the insurance producer:
        (1) obtains or uses credit information or insurance scores for the insurer;
        (2) follows the instructions of or procedures established by the insurer; and
        (3) complies with applicable laws and regulations.
    (b) This section does not provide a consumer with a cause of action that does not exist in the absence of this section.
    Sec. 22. (a) A consumer reporting agency may not provide or sell data or lists that include information submitted in conjunction with:
        (1) an insurance inquiry about a consumer's credit information; or
        (2) a request for a credit report or insurance score;
including the expiration dates of an insurance policy or other information that may identify periods during which a consumer's insurance expires and the terms and conditions of the consumer's insurance coverage.
    (b) The restrictions under subsection (a) do not apply to data or lists a consumer reporting agency supplies to an:
        (1) insurance producer from whom the information was received;
        (2) insurer on behalf of which the insurance producer described in subdivision (1) acted; or
        (3) affiliate or holding company of the insurer described in subdivision (2).
    (c) This section does not prohibit an insurer from obtaining a claim history report or a motor vehicle report.
     Sec. 23. A violation of this chapter by an insurer is an unfair and deceptive act and practice in the business of insurance under IC 27-4-1-4.
    SECTION 2. IC 27-4-1-4, AS AMENDED BY P.L.130-2002, SECTION 3, IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2003]: Sec. 4. The following are hereby defined as unfair methods of competition and unfair and deceptive acts and practices in the business of insurance:
        (1) Making, issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, or statement:
            (A) misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplus to be received thereon;
            (B) making any false or misleading statement as to the dividends or share of surplus previously paid on similar policies;
            (C) making any misleading representation or any misrepresentation as to the financial condition of any insurer, or as to the legal reserve system upon which any life insurer operates;
            (D) using any name or title of any policy or class of policies misrepresenting the true nature thereof; or
            (E) making any misrepresentation to any policyholder insured in any company for the purpose of inducing or tending to induce such policyholder to lapse, forfeit, or surrender ~~his~~ the policyholder's insurance.
        (2) Making, publishing, disseminating, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio or television station, or in any other way, an advertisement, announcement, or statement containing any assertion, representation, or statement with respect to any person in the conduct of ~~his~~ the person's insurance business, which is untrue, deceptive, or misleading.
        (3) Making, publishing, disseminating, or circulating, directly or indirectly, or aiding, abetting, or encouraging the making,

publishing, disseminating, or circulating of any oral or written statement or any pamphlet, circular, article, or literature which is false, or maliciously critical of or derogatory to the financial condition of an insurer, and which is calculated to injure any person engaged in the business of insurance.
        (4) Entering into any agreement to commit, or individually or by a concerted action committing any act of boycott, coercion, or intimidation resulting or tending to result in unreasonable restraint of, or a monopoly in, the business of insurance.
        (5) Filing with any supervisory or other public official, or making, publishing, disseminating, circulating, or delivering to any person, or placing before the public, or causing directly or indirectly, to be made, published, disseminated, circulated, delivered to any person, or placed before the public, any false statement of financial condition of an insurer with intent to deceive. Making any false entry in any book, report, or statement of any insurer with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to which such insurer is required by law to report, or which has authority by law to examine into its condition or into any of its affairs, or, with like intent, willfully omitting to make a true entry of any material fact pertaining to the business of such insurer in any book, report, or statement of such insurer.
        (6) Issuing or delivering or permitting agents, officers, or employees to issue or deliver, agency company stock or other capital stock, or benefit certificates or shares in any common law corporation, or securities or any special or advisory board contracts or other contracts of any kind promising returns and profits as an inducement to insurance.
        (7) Making or permitting any of the following:
            (A) Unfair discrimination between individuals of the same class and equal expectation of life in the rates or assessments charged for any contract of life insurance or of life annuity or in the dividends or other benefits payable thereon, or in any other of the terms and conditions of such contract; however, in determining the class, consideration may be given to the nature of the risk, plan of insurance, the actual or expected expense of conducting the business, or any other relevant factor.
            (B) Unfair discrimination between individuals of the same class involving essentially the same hazards in the amount of premium, policy fees, assessments, or rates charged or made

for any policy or contract of accident or health insurance or in the benefits payable thereunder, or in any of the terms or conditions of such contract, or in any other manner whatever; however, in determining the class, consideration may be given to the nature of the risk, the plan of insurance, the actual or expected expense of conducting the business, or any other relevant factor.
            (C) Excessive or inadequate charges for premiums, policy fees, assessments, or rates, or making or permitting any unfair discrimination between persons of the same class involving essentially the same hazards, in the amount of premiums, policy fees, assessments, or rates charged or made for:
                (i) policies or contracts of reinsurance or joint reinsurance, or abstract and title insurance;
                (ii) policies or contracts of insurance against loss or damage to aircraft, or against liability arising out of the ownership, maintenance, or use of any aircraft, or of vessels or craft, their cargoes, marine builders' risks, marine protection and indemnity, or other risks commonly insured under marine, as distinguished from inland marine, insurance; or
                (iii) policies or contracts of any other kind or kinds of insurance whatsoever.
        However, nothing contained in clause (C) shall be construed to apply to any of the kinds of insurance referred to in clauses (A) and (B) nor to reinsurance in relation to such kinds of insurance. Nothing in clause (A), (B), or (C) shall be construed as making or permitting any excessive, inadequate, or unfairly discriminatory charge or rate or any charge or rate determined by the department or commissioner to meet the requirements of any other insurance rate regulatory law of this state.
        (8) Except as otherwise expressly provided by law, knowingly permitting or offering to make or making any contract or policy of insurance of any kind or kinds whatsoever, including but not in limitation, life annuities, or agreement as to such contract or policy other than as plainly expressed in such contract or policy issued thereon, or paying or allowing, or giving or offering to pay, allow, or give, directly or indirectly, as inducement to such insurance, or annuity, any rebate of premiums payable on the contract, or any special favor or advantage in the dividends, savings, or other benefits thereon, or any valuable consideration or inducement whatever not specified in the contract or policy; or giving, or selling, or purchasing or offering to give, sell, or

purchase as inducement to such insurance or annuity or in connection therewith, any stocks, bonds, or other securities of any insurance company or other corporation, association, limited liability company, or partnership, or any dividends, savings, or profits accrued thereon, or anything of value whatsoever not specified in the contract. Nothing in this subdivision and subdivision (7) shall be construed as including within the definition of discrimination or rebates any of the following practices:
            (A) Paying bonuses to policyholders or otherwise abating their premiums in whole or in part out of surplus accumulated from nonparticipating insurance, so long as any such bonuses or abatement of premiums are fair and equitable to policyholders and for the best interests of the company and its policyholders.
            (B) In the case of life insurance policies issued on the industrial debit plan, making allowance to policyholders who have continuously for a specified period made premium payments directly to an office of the insurer in an amount which fairly represents the saving in collection expense.
            (C) Readjustment of the rate of premium for a group insurance policy based on the loss or expense experience thereunder, at the end of the first year or of any subsequent year of insurance thereunder, which may be made retroactive only for such policy year.
            (D) Paying by an insurer or agent thereof duly licensed as such under the laws of this state of money, commission, or brokerage, or giving or allowing by an insurer or such licensed agent thereof anything of value, for or on account of the solicitation or negotiation of policies or other contracts of any kind or kinds, to a broker, agent, or solicitor duly licensed under the laws of this state, but such broker, agent, or solicitor receiving such consideration shall not pay, give, or allow credit for such consideration as received in whole or in part, directly or indirectly, to the insured by way of rebate.
        (9) Requiring, as a condition precedent to loaning money upon the security of a mortgage upon real property, that the owner of the property to whom the money is to be loaned negotiate any policy of insurance covering such real property through a particular insurance agent or broker or brokers. However, this subdivision shall not prevent the exercise by any lender of ~~its~~ or ~~his~~ the lender's right to approve or disapprove of the insurance company selected by the borrower to underwrite the insurance.

        (10) Entering into any contract, combination in the form of a trust or otherwise, or conspiracy in restraint of commerce in the business of insurance.
        (11) Monopolizing or attempting to monopolize or combining or conspiring with any other person or persons to monopolize any part of commerce in the business of insurance. However, participation as a member, director, or officer in the activities of any nonprofit organization of agents or other workers in the insurance business shall not be interpreted, in itself, to constitute a combination in restraint of trade or as combining to create a monopoly as provided in this subdivision and subdivision (10). The enumeration in this chapter of specific unfair methods of competition and unfair or deceptive acts and practices in the business of insurance is not exclusive or restrictive or intended to limit the powers of the commissioner or department or of any court of review under section 8 of this chapter.
        (12) Requiring as a condition precedent to the sale of real or personal property under any contract of sale, conditional sales contract, or other similar instrument or upon the security of a chattel mortgage, that the buyer of such property negotiate any policy of insurance covering such property through a particular insurance company, agent, or broker or brokers. However, this subdivision shall not prevent the exercise by any seller of such property or the one making a loan thereon, of his, her, or its right to approve or disapprove of the insurance company selected by the buyer to underwrite the insurance.
        (13) Issuing, offering, or participating in a plan to issue or offer, any policy or certificate of insurance of any kind or character as an inducement to the purchase of any property, real, personal, or mixed, or services of any kind, where a charge to the insured is not made for and on account of such policy or certificate of insurance. However, this subdivision shall not apply to any of the following:
            (A) Insurance issued to credit unions or members of credit unions in connection with the purchase of shares in such credit unions.
            (B) Insurance employed as a means of guaranteeing the performance of goods and designed to benefit the purchasers or users of such goods.
            (C) Title insurance.
            (D) Insurance written in connection with an indebtedness and intended as a means of repaying such indebtedness in the

event of the death or disability of the insured.
            (E) Insurance provided by or through motorists service clubs or associations.
            (F) Insurance that is provided to the purchaser or holder of an air transportation ticket and that:
                (i) insures against death or nonfatal injury that occurs during the flight to which the ticket relates;
                (ii) insures against personal injury or property damage that occurs during travel to or from the airport in a common carrier immediately before or after the flight;
                (iii) insures against baggage loss during the flight to which the ticket relates; or
                (iv) insures against a flight cancellation to which the ticket relates.
        (14) Refusing, because of the for-profit status of a hospital or medical facility, to make payments otherwise required to be made under a contract or policy of insurance for charges incurred by an insured in such a for-profit hospital or other for-profit medical facility licensed by the state department of health.
        (15) Refusing to insure an individual, refusing to continue to issue insurance to an individual, limiting the amount, extent, or kind of coverage available to an individual, or charging an individual a different rate for the same coverage, solely because of that individual's blindness or partial blindness, except where the refusal, limitation, or rate differential is based on sound actuarial principles or is related to actual or reasonably anticipated experience.
        (16) Committing or performing, with such frequency as to indicate a general practice, unfair claim settlement practices (as defined in section 4.5 of this chapter).
        (17) Between policy renewal dates, unilaterally canceling an individual's coverage under an individual or group health insurance policy solely because of the individual's medical or physical condition.
        (18) Using a policy form or rider that would permit a cancellation of coverage as described in subdivision (17).
        (19) Violating IC 27-1-22-25 or IC 27-1-22-26 concerning motor vehicle insurance rates.
        (20) Violating IC 27-8-21-2 concerning advertisements referring to interest rate guarantees.
        (21) Violating IC 27-8-24.3 concerning insurance and health plan coverage for victims of abuse.

        (22) Violating IC 27-8-26 concerning genetic screening or testing.
        (23) Violating IC 27-1-15.6-3(b) concerning licensure of insurance producers.
        (24) Violating IC 27-1-38 concerning depository institutions.
        (25) Violating IC 27-2-21 concerning use of credit information.
    SECTION 3. [EFFECTIVE JULY 1, 2003] Notwithstanding IC 27-2-21, as added by this act, IC 27-2-21, as added by this act, applies to a personal insurance:
        (1) policy application that is submitted; or
        (2) policy that is issued, delivered, amended, or renewed;
after December 31, 2003.