Volume 1, Issue 1
Catholic University
Published: 2017 ,
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CHIH-FENG LI & FU-JEN. (2017). The Use and Regulation of Individual Credit Information for Personal L ines of Insurance. Journal of Commercial Law Review, 1(1), 45-64..
Individual credit information is the results of financial management and choices by consumers themselves
one of whose functions is to assist the insurer to have more accurate risk appraisal in property insurance of personal lines. Insurance by its very nature discriminates among classes of individuals so any factor assists to accurately assess the risks transferred from the insureds should be supplied to the insurer for underwriting. However
there are some shortcomings in the use of credit information in insurance
leading to that some specific minorities and low-income consumers have negative factors in their credit information and the insurer has adverse action against them. As a result
from the view of consumer protection
consumer groups propose to wholly prohibit the use of individual credit information in personal lines. In addition to reviewing the reasons submitted by the opponents of the use of individual credit information in personal lines
this paper founds the legality and justification of the use of individual credit information in person lines on the nature of insurance and principle of equity. Furthermore
it presents and analyzes the acts and regulations of the use of individual credit information in the United States
which is the first place to develop this issue. In conclusion
it analyzes the current legislative condition in Taiwan and extends legislative suggestions with reference to the acts and regulations in the United States. The authors anticipate that these suggestions could be adopted as reference resource when the legislation or regulation for the use of individual credit information in personal lines is enacted or promulgated.
consumer protectioncredit informationcredit scoreproperty insuranceunderwritingrisk appraisalprinciple of equity
1.See Dee Pridgen & Richard M. Alderman, Consumer Credit and the Law § 2:1(2008-2009 ed.).2. Id. at § 2:1.3.Chi-Chou Yeh, Re-Review of Retroactive Insurance, in The Study on Issues of Insurance Law 21, 21 (May 2007).4. NAIC, Draft, Review of the Use of Credit-Based Insurance Scoring By Insurers 2(Aug. 2008), available at http://www.naic.org/documents/committees_d_credit_scoring_paper.pdf (last visit on May 3,2009).5. Gregory Shaffer, Globalization and Social Protection: The Impact of EU and International Rules in The Ratcheting Up of U.S. Privacy Standards, 25 Yale J.Int l L. 1, 10-25 (Winter 2000).6. Ian O Neill, Disparate Impact, Federal/State Tension and the Use of Credit Scores by Insurance Companies,19 Loy. Consumer L. Rev.151, 152 (2007).7.Maghan F. McClure, Notes and Comments, Adverse Action Notices under theFCRA: The Supreme Court Provides Guidance, 12 N.C. Banking Inst. 273, 275(Mar., 2008).8. Harold D. Skipper & W. Jean Kwon, Risk Management and Insurance:Perspective in a Global Economy 175 (2007).9. Id.10. Id. at 274-75.11. It is also named as utmost good faith absolute good faith greatest good faith most perfect good faith honour bad faith. See Peter Macdonald Eggers et al.,Good Faith and Insurance Contract 2 (2nd ed. 2004).12. Shin-Chun Wang, The Nature of Disclosure Duty in Insurance Law and Non-Real Duty, 36 Nat l Taiwan U. L. J. 1, 2 (Sep. 2006).13. See, e.g., Mary Crossley, Discrimination Against the Unhealthy in Health Insurance, 54 U. Kan. L. Rev. 73, 77-78 (2005).14. NAIC, supra note 4, at 9-19.15.There are nine studies including National Association of Insurance Commissioners, Credit Reports and Insurance Underwriting, 冶 1996; Fair Isaac, Predictiveness of Credit History for Insurance Loss Ratio Relativities, October1999; Monaghan, James E., The Impact of Personal Insurance Credit History on Loss Performance in Personal Lines, 2000, Casualty Actuary Society Forum-Winter: 79-19-05; Conning & Company, Insurance Scoring in Personal Automobile Insurance - Breaking the Silence, 2001; American Academy of Actuaries and Risk Classification Subcommittee of the Property/Casualty Products, Pricing, and Market Committee, The Use of Credit History for Personal Lines of Insurance: Report to the National Association of Insurance Commissioners, 2002; Kellison, Bruce, Patrick Brockett, Seon-Hi Shin, and Shihong Li, A Statistical Analysis of the Relationship Between Credit History and Insurance Losses, Bureau of Business Research, University of Texas at Austin, 2003; Miller, Michael J. and Richard A. Smith, The Relationship of Credit-Based Insurance Scores to Private Passenger Automobile Insurance Loss Propensity An Actuarial Study by EPIC Actuaries, LLC, 2003; Wu,Cheng-Sheng Peter and James C. Guszcza, Does Credit Score Really Explain Insurance Losses? Multivariate Analysis from a Data Mining Point of View, 2003, Proceedings of the Casualty Actuarial Society 113-138; Brokett, Patrick L. and Linda L. Golden, Biological and Psychobehavioral Correlates of CreditScores and Automobile Insurance Losses: Toward an Explication of Why Credit Scoring Works, The Journal of Risk and Insurance, 2007, Vol. 74, No. 1,23-63.16. NAIC, supra note 4, at 9.17. There are nine studies including Commonwealth of Virginia, State Corporation Commission, Bureau of Insurance, Use of Credit Reports in Underwriting, 1999; The Use of Insurance Credit Scoring In Automobile and Homeowners Insurance, A Report to the Governor, the Legislature and the People of Michigan, Frank M. Fitzgerald, Commissioner Office of Financial andInsurance Services, December 2002; A Report to the Legislature, Effect ofCredit Scoring on Auto Insurance Underwriting and Pricing, WashingtonOffice of Insurance Commissioner, Prepared by: Washington State University,Social & Economic Sciences, Research Center, Dave Pavelchek, PRR Inc.Bruce Brown, January 2003; State of Alaska, Department of Community andEconomic Development, Division of Insurance, Insurance Credit Scoring inAlaska, February 21, 2003; Maryland Insurance Administration, Report onthe Credit Scoring Data of Insurers in Maryland, 2004; Kabler, Brent, Insurance-Based Credit Scores: Impact on Minority and Low IncomePopulations in Missouri, 2004; Texas Department of Insurance, Use of CreditInformation by Insurers in Texas: The Multivariate Analysis (Jan. 31, 2005)and Texas Department of Insurance, Use of Credit Information by Insurers inTexas (Dec. 30, 2004); Arkansas Insurance Department, Use and Impact ofCredit in Personal Lines Insurance Premiums Pursuant to Ark. Code Ann. §23-67-415, July 2007; Federal Trade Commission, Credit-Based InsuranceScores: Impacts on Consumers of Automobile Insurance, 2007.18. 15 U.S.C. § 1681 note (2006).19. O Neill, supra note 6, at 170.20. NAIC, supra note 4, at 8.21. Texas Department of Insurance, supra note 17, at 3.22.Use of Credit Scores in Personal Line Insurance Rating, http://www.insurereinsure.com/BlogHome.aspx?entry=822 (visited May 5, 2009).23. O Neill, supra note 6, at 171.24. NAIC, supra note 4, at 4.25. O Neill, supra note 6, at 173.26. U.S. PRIG, Mistakes Do Happen: A Look at Errors in Consumer Credit Reports(June 2004), available at http://uspirg.org/uspirg.asp?id2=13649&id3=USPIRG& (last visited May 27, 2009).27. See Deborah Hellman, What Makes Genetic Discrimination Exceptional?, 29Am. J.L. & Med. 77, 87 (2003).28. William Goddard, Note and Commentary, Swimming in the Wake of Dehoyos:When Federal Courts Sail into Disparate Impact Waters, Will State Regulationof Insurance Remain above the Waves?, 10 Conn. Ins. L.J. 369, 369(2003-2004).29. FTC, supra note 17, at 38.30. Arkansas Insurance Department, supra note 17, at 3-4.31. Candace Heckman, Study Assails Accuracy of Credit Reports, Seattle Post,June 21, 2004, available at http://www.seattlepi.com/local/178825_creditscores21.asp (last visited May 28, 2009).32. Id.33. 565 F. Supp. 1485 (D.C.N.Y. 1983).34. Id. at 1489.35. 220 U.S. 61 (1911).36. Id. at 78-79.37. Ferguson v. Skrupa 372 U.S. 726, 732 (1963).38. Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78-79 (1911).39. In Taiwan, the clause of principle of equity is in Article 7 of Constitution Law,ROC.40. 75 U.S. 168 (1968).41. 322 U.S. 533 (1944).42. 15 U.S.C § 1012(b).43. Elwin Griffith, The Quest for Fair Credit Reporting and Equal CreditOpportunity in Consumer Transactions, 25 U. Memphis L. Rev. 37, 38 (1994).44. 15 U.S.C.A. § 1681m(a).45. Gail Hillebrand, After the FACTA: State Power to Prevent Indemnity Theft, 17Loy. Consumer L. Rev. 53, 57-58 (2004).46. Fair and Accurate Credit Transactions Act § 212(e)(3)(C).47. NCOIL is an association consisted of the state legislators in the United States,for the detail of NCOIL, please visit it website, http://www.ncoil.org/ncoilinfo/about.html (last visited May 29, 2009).6348.This Model Act is available at the following website, http://www.aisus.com/o/ncoil.html (last visited May 9, 2009).49.NAMIC, State Laws Governing Insurance Scoring Practices, http://www.namic.org/reports/credithistory/credithistory.asp (last visited May 3, 2009).50.Section 5 C of Model Act.51.Section 5 B, D, E of Model Act.52.Section 5 A of Model Act.53.Section 6 of Model Act.54.Section 7 of Model Act.55.Section 8 of Model Act.56.Section 8 of Model Act.57.NAIC, Compliance Grid: Credit-Based Insurance Scoring Laws (Nov. 14, 208),available at http://www.namic.org/compliance/CreditBasedInsuranceScoring.pdf(last visited May 9, 2012.).
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