AN ACT CONCERNING AUTOMOBILE INSURANCE.

This bill makes changes in the insurance laws relating to an insurer's rating plans for personal risk insurance policies e. g. , homeowner's, tenant's, and private passenger non-fleet automobile (auto) policies. It incorporates into law, and adds to, the Insurance Department's current guidelines for how insurers can use a person's credit history when underwriting or rating a policy. It specifies what may and may not be added to an auto policy's base rate on a flat dollar basis.

Current law allows the commission to adopt regulation concerning rating plans. The bill instead requires the commissioner to adopt regulations, by January 1, 2011, to implement statutory provisions regarding rate-setting standards, methods, and criteria. The regulations must include the department's “most current guidelines and bulletins” regarding the underwriting, classification, or rating of auto insurance risks in Connecticut, including those regarding territorial rating (see BACKGROUND). It requires each rating plan for auto insurance that includes territorial classifications to assign a weight of 75% to individual territorial loss-cost indication and 25% to the state-wide average loss-cost indication.

The bill requires an insurer that cancels an auto insurance policy in accordance with law to give written cancellation notice to any lienholder listed in the insurer's records as having a legal interest in the motor vehicle.

It requires a person whose vehicle has been impounded for not having the required registration or insurance to present a valid registration and current auto insurance identification card in order to regain possession of the vehicle.

*House Amendment “A” (1) applies the bill's provisions regarding financial history programs to all personal risk policies rather than just auto policies; (2) modifies several provisions regarding these programs, including disclosure requirements and prohibited practices; (3) adds the provision on territorial classifications; (4) delays the effective date of several provisions; and (5) makes minor changes.

EFFECTIVE DATE: October 1, 2009 for the provisions on impounded vehicles notice to lienholders of auto policy cancellations, January 1, 2010, for the allocation of auto insurance costs and actions tied to an insured or applicant's credit history or report, and July 1, 2010 for the financial history measurement program provisions.

The bill permits an insurer to use a “financial history measurement program” only when underwriting or developing rates for new personal risk insurance policies. It prohibits an insurer from using credit history when renewing a policy, unless the policyholder asks or using the program reduces the insured's premium under the insurer's filed rates and rules.

The bill defines “financial history measurement program” as a program that uses an insurance applicant's credit history to measure his or her risk of loss (i. e. , filing claims). It defines “credit history” as credit-related information (1) derived from or found in a credit report or credit scoring program or (2) provided in an application for personal risk insurance.

The bill requires an insurer using a financial history measurement program to underwrite or rate policies to file the program with the insurance commissioner. The filing must:

1. include the program's description, rules, and procedures;

2. identify the characteristics the program uses from which the insurer derives a measurement; and

3. explain how the program reduces the impact credit information and public records have on insurance rates over time.

The bill prohibits the program from (1) unfairly discriminating among applicants or (2) producing rates that are excessive for the risk assumed. This filing is considered a trade secret, and thus not subject to disclosure under the Freedom of Information Act.

The bill requires an insurer using a financial history measurement program to also give the commissioner documentation demonstrating (1) the correlation between the program and the expected risk of loss and (2) how the program affects consumers (a) in urban versus nonurban territories and (b) of different ages. The bill authorizes the commissioner to request an insurer to provide a financial history measurement for a set of test examples reflecting various characteristics.

When anyone applies for a policy the bill requires an insurer to disclose to the person that the company may use his or her credit history in the underwriting or rating process The insurer must also disclose, at the same time, that the applicant may request, in writing, that the insurer consider an extraordinary life circumstance during this process or during a review requested by such applicant of a rate quote, if the applicant's credit history has been harmed by a such a circumstance that occurred within three years before the application. The insurer must make these disclosures, in writing, by e-mail or telephone, or orally.

1. lists the insurer's name, address, telephone number, and toll-free telephone number, if any;

2. includes a detailed statement that explains how the insurer will use credit information to underwrite or rate the policy; and

3. summarizes consumer protections provided in law.

The disclosure must be printed in reasonably conspicuous type and be provided electronically, by mail, or hand delivery.

The bill prohibits insurers from using the following characteristics regarding an applicant or an insured in its financial history measurement program:

1. the number of credit inquiries in a credit report or credit history;

2. the use of a particular type of credit, debit, or charge card;

3. the total available line of credit;

4. any disputed credit information while a credit reporting company is reviewing the dispute, so long as the information is identified as being disputed in the report or history;

5. debt the applicant incurred from financing hospital or medical expenses; and

6. the lack of credit history, unless the insurer treat the applicant or insured as if he or she had neutral credit information as defined by the insurer.

A financial history measurement program must give the same weight to an applicant's or insured's purchase or financing of a specific item regardless of the type of item purchased or financed.

Extraordinary Life Circumstances. The bill requires an insurer to consider during its underwriting or rating process or during a review requested by an applicant, an applicant's extraordinary life circumstance. The insurer must do this at an applicant's written request if a circumstance occurred within three years before the application date. If the insurer determines that the applicant's credit history has been adversely impacted by an extraordinary life circumstance, it must grant a reasonable exception to its rates, rating classifications, or underwriting rules for the applicant.

1. a catastrophic illness or injury;

2. a divorce;

3. a spouse's, child's, or parent's death;

4. the involuntary loss of employment for more than three consecutive months;

5. identity theft;

6. total or other loss that makes a home uninhabitable;

7. other circumstances the commissioner identifies in regulations adopted in accordance with law; or

8. any other circumstance the insurer chooses to recognize.

The bill permits an insurer to require the applicant to provide reasonable, independently verifiable documentation of the extraordinary circumstance and its effect on the applicant's credit report or credit history. It requires an insurer to keep confidential any documentation or information it obtains.

If the insurer grants an exception, it must (1) consider only credit information that is not affected by the extraordinary circumstance, or (2) treat the applicant as if he or she had neutral or better than neutral credit information, as defined by the insurer.

An insurer may not be deemed to be out of compliance with any provision of the statutes or regulations concerning underwriting, rating, or rate filing solely on the basis of the granting of an exception.

The bill prohibits an insurer from denying, cancelling, or not renewing an insurance policy solely on the basis of a person's (1) credit history or rating or (2) lack of credit history. The bill specifies that it does not deem an insurer to have declined, cancelled, or not renewed a policy if coverage is available to the person through an affiliated insurer.

The bill requires an insurer that takes an adverse action due in part to an insured's or applicant's credit report to (1) disclose this to the person, (2) tell him or her of the right to obtain a free credit report, and how to do so, (3) the types of extraordinary life circumstances described above; and (4) how an applicant may inform the insurer of an extraordinary life circumstance and submit any required documentation in order to seek an exception.

1. denying coverage or offering restricted coverage,

2. offering a higher rate,

3. assigning a person to a higher rate tier or higher-priced company within an insurer group, or

4. any other action that adversely impacts an insured or applicant due to the insurer's financial history measurement program.

The bill allows the commissioner to require an insurer, once its financial history measurement program has been in effect for two years, to report to him. The report must include information demonstrating that the program results in rates that are (1) supported by the data and (2) not unfairly discriminatory. It must also include an analysis of consumer complaints the insurer received because it used a financial history measurement program. The analysis must identify the basis for the complaints and any action the insurer took as a result.

The bill specifies what expenses an auto insurer can and cannot allocate to a policy's base rate on a “flat dollar” basis.

It prohibits insurers from allocating as flat dollar amounts to the base rate (1) producer commissions, (2) premium taxes, (3) underwriting profits, or (4) contingencies.

It requires an insurer to add a flat dollar amount to the base rate for (1) at least 90% of general expenses, including administration and overhead costs; (2) at least 90% of acquisition costs for other marketing and agent field offices, which may be allocated over the expected life of the insurer's policies; and (3) miscellaneous taxes, licenses, and fees. It requires that the flat dollar amount be added after the insurer has applied any classification factors to the base rate.

By law, an insurer may group risks by classifications and modify base rates for a person's individual characteristics as described in the rating plan it files with the commissioner.

By law, an auto insurance policy cancellation is effective only if it is due to (1) failure to pay premiums or (2) a revocation of the driver's license or registration of either (a) the named insured or (b) any operator living in the same household or who customarily uses a vehicle the policy insures (CGS § 38a-342). The law does not apply to (1) a policy issued through the residual market or (2) any coverage that has been in effect less than 60 days at the time the insurer mails or delivers the cancellation notice, unless it relates to a policy (a) being renewed or (b) that a customer is not renewing.

The law (1) prohibits insurance rates from being excessive, inadequate, or unfairly discriminatory; (2) requires an insurer to file with the commissioner its underwriting rules, rates, supplementary rate information, and any supporting information used for the rates; and (3) requires certain premium discounts under certain conditions (e. g. , completing driver training, senior citizen accident prevention, and motorcycle training courses). The law also permits insurers to group risks by classification, measuring differences in risks that can be demonstrated to have a probable effect upon losses or expenses.

The term “territorial rating” refers to an insurer's practice of factoring in, when setting auto insurance rates, the principle place where a driver garages his or her vehicle. The Insurance Department requires a 75%/25% weighting of territory to statewide experience. This means that the base rate for an auto insurance policy must give 75% weight to the territory's loss-cost data and 25% weight to the statewide average loss-cost data.

Yea

Nay

(03/12/2009)