Illinois Ends Credit-Rescoring Mandate

Illinois Gov. Pat Quinn signed industry-backed legislation to eliminate a state mandate that insurers recheck policyholders' credit information every three years.

Intended as a consumer protection, the re-scoring requirement added costs to the system for insurers and consumers alike, Greg LaCost, assistant vice president and regional manager for the Property Casualty Insurers Association of America, said in a statement. He noted that Indiana enacted a similar rule change earlier this year.

"By making credit checks on renewals voluntary, consumers have more control and can opt for the check only when they think their score has improved," LaCost said.

The law, H.B. 418, also amended the state's Credit Information in Personal Insurance Act to require that if an insurer denies, cancels, or does not renew a policy of personal insurance based on credit information, it must notify the policyholder and provide an opportunity for the affected party to explain its credit information under an existing measure in the law concerning extraordinary life events.

Under the revised statute, "an insurer that uses credit information to underwrite or rate risks shall, at annual renewal upon the request of an insured or an insured's agent, re-underwrite and re-rate the insured's personal insurance policy based on a current credit report or insurance score."

Illinois-based State Farm Insurance supported the legislation for its mix of an industry benefit and consumer choice, spokeswoman Angie Rinock said.

At its summer meeting, the National Conference of Insurance Legislators approved an amendment to its model law on credit-based insurance scoring that would require insurers using the practice to allow leeway for customers' "extraordinary life circumstances." Property/casualty insurers supported the amendment as a fair compromise between insurer and consumer interests (BestWire, July 12, 2009).

As defined by the revised NCOIL model, such circumstances could include, but are not limited to: serious illness or injury; death of a spouse, child or parent; divorce; identity theft; loss of employment for three months or more; military service overseas; and a federal or state-government declared catastrophic event. Policyholders would have to demonstrate that their circumstances affected their credit score.