OIR Rule Development Workshop: Use of Credit Reports and Scores by Insurers

Today, February 17, 2009, the Florida Office of Insurance Regulation (“OIR”) held a Rule Development Workshop on proposed Rule 690-125.005 entitled “Use of Credit Reports and Credit Scores by Insurers.”  To view the meeting notice, click here.

OIR Assistant General Counsel Steve Fredrickson presided over the workshop.  OIR Actuary Howard Eaglefeld, Assistant General Counsel Steve Parton, Deputy Commissioner Belinda Miller and Property and Casualty Product Review Deputy Director Mike Milnes also were present.

Mr. Fredrickson provided a history of Florida’s credit scoring Rule promulgation dating from 2003.  Workshops and public hearings were held annually on the issue until 2006. 

Following the 2005 promulgation, a Rule challenge was initiated.  In 2006, the First District Court of Appeals declared a portion of the Rule to be invalid.  (The current proposed version of the Rule does not include the invalid provisions). 

In 2007, another petition challenging the validity of a new Rule was filed, but dismissed in 2008.  In October 2008, a fourth Rule development process was initiated for Rule 690-125.005, which was the version reviewed in today’s Workshop. 

Cynthia Tunnicliff provided oral and written comments on behalf of several trade associations.  In her testimony, she discussed several issues relating to legal standards in the proposed Rule:

• The information requested from insurers is not necessary for the OIR to approve filings.  The OIR has approved hundreds of filings without using credit scoring. 
• The information requested is overly burdensome and will be expensive for insurers to process
• The current statutes authorize the use of credit scoring
• The Rule violates the Administrative Procedures Act, which prohibits regulatory rulemaking without statutory authority
• Several provisions are arbitrary and capricious

Mr. Parton indicated that this Rule regulates and limits the use of credit scoring by insurers.  He contended that the statute authorizes the Rule’s use, and noted that the OIR and the industry have a different legal opinion about its validity.  Mr. Parton indicated the OIR will consider clarifying subsections (3) and (4) of the proposed Rule related to filing requirements and insurer determinations. 

Challenging the contention that providing this data is burdensome, Mr. Parton explained that the Rule is a necessary tool to look behind insurer models, and is similar to the function of the Commission on Florida Hurricane Loss Projection Methodology. 

Michael Miller provided an actuarial review of the proposed Rule.  He stated that many insurers use the weighted average of several credit-related factors, and that credit score alone is not a rate factor.  The focus of the Rule should be whether the rates and rate factors are unfairly discriminatory because the Rule is related to rate regulation. 

Mr. Parton noted that the statute authorizing the promulgation of the Rule is not in the rating section and engaged with Mr. Miller in a significant dialogue regarding the findings of the Federal Trade Commission study on the use of credit scoring.

Mr. Miller and Mr. Eaglefeld engaged in a lengthy discussion related to actuarial issues in the proposed Rule.  Mr. Miller noted that subsection (8) of the proposed Rule requires insurers to provide a wealth of unnecessary information and suggested that this subsection be re-evaluated.  He remarked that many provisions of subsections 4(a)(2 and 3) are ambiguous.  One example given pertained to the term “professionally validated,” a term which Mr. Eaglefeld noted was not necessarily an actuarial principal.

Finally, an industry representative opined that computer software containing credit scoring methodologies is protected as trade secret information.  Mr. Parton noted that the industry now argues that the computer crimes statute applies, whereas five years ago it argued against the applicability of the same statute.

There being no further comments on the proposed Rule, Mr. Fredrickson concluded the meeting.

Tomorrow, February 18, 2009, the OIR will hold a public hearing on the proposed Rule.  Five insurance companies – Allstate, GEICO, Nationwide, Progressive and State Farm – have been subpoenaed to provide testimony.  To view the meeting notice, click here.

The OIR has requested that corporate representatives from each of these companies who are the most knowledgeable about the above issues should attend the hearing and be prepared to testify on behalf of their respective companies.  To view the subpoenas, click here.     

 

Should you have any questions or comments regarding the above matter, please feel free to contact Colodny Fass.

 

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