There has been quite a bit of discussion lately regarding the use of credit information by insurers as part of the underwriting process, and because of this, I have received numerous requests to blog-on regarding the rules surrounding credit use.

For the statutory geeks out there, click here for a link to the Oregon Revised Statute (ORS) that regulates the use of insurance and credit.  The specific statue is ORS 746.661, so page down when you get to the web page to find the numbered statute, and ”geek on.”

For those of you who aren’t that thrilled over digesting statutory language, here’s what’s going on.  Insurance companies have been using credit since the early 1990s in some shape or form, but it hasn’t gotten the attention that it deserved until recently.  Historically, insurers have used credit for simple acceptance or declination purposes.  In other words, a person’s credit was a determining factor of whether or not to issue to policy in the first place, and did not have any effect on the premium costs.  Now, as you are more than likely aware, not only will credit be a determining factor on whether a policy gets issued, it will also play a huge role in premium determination.

So…what exactly can insurance companies in Oregon do with credit?  I’m glad I asked…here’s some basic information regarding the use of credit in Oregon.  BTW— most states use similar rules!

1. An insurer is allowed to use insurance scoring when underwriting a risk for initial placement.  They can use the info to accept or reject the risk, as well as to apply different rates or “tiering”  to that risk based on the insurance score and other criteria
2. An insurer cannot non-renew an insured based solely on insurance scoring.  They may, however, re-rate a person with each renewal based on credit scoring.  Most insurers will not place a person into a higher risk category simply due to credit under current mentality, however.
3. An insurer cannot re-rate a risk, based in fully or in part on insurance scoring, if the reason for the declining insurance score was death or divorce
4. A policyowner has the right to request a re-rating on any type of policy that used credit as a qualifying criterion once per 12 month period.  (BEWARE!! There are a few insurers out there who WILL place the insured in a more expensive tier if their insurance score has declined since the last underwriting of the risk.  Most won’t play this lame game, but remember to read the paperwork carefully.)

There’s quite a bit more out there that both producers and customers need to be aware of regarding credit use and insurance.  If you have any specific questions, I would be more than happy to get you some answers.  Have a good one!

This entry was posted on Tuesday, July 17th, 2007 at 1:46 pm and is filed under Insurance Industry News, Student Lounge. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.