PA 10-7—sHB 5014

Insurance and Real Estate Committee


SUMMARY: This act codifies and amends the Insurance Department's guidelines on how insurers can use a person's credit history when underwriting or rating a personal risk insurance policy (e. g. , homeowners or private passenger nonfleet automobile (auto)). It also makes numerous changes in laws relating to auto insurance. Specifically, the act:

1. requires an auto insurer to allocate certain expenses on a “flat dollar basis” when determining policy rates;

2. requires auto insurance rating plans that use territorial classifications to assign a weight of 75% to individual loss-costs and 25% to state wide average loss-costs, as currently required by Insurance Department guidelines;

3. requires the insurance commissioner to adopt regulations regarding underwriting and rating auto insurance policies;

4. 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 ( 5);

5. requires a person whose vehicle has been impounded for not having the required registration to present a valid registration and current auto insurance identification card to regain possession of the vehicle ( 6);

6. allows an auto insurer to use any publicly available auto industry source approved by the commissioner to determine a totaled vehicle's retail value;

7. requires an auto insurer to give a claimant details on how it calculated a totaled vehicle's loss value, including how to dispute the settlement through the Insurance Department; and

8. increases, from 10% to 15% per year, the interest an arbitrator the Insurance Department uses to resolve a settlement dispute between an auto insurer and claimant must award when the decision favors the consumer
( 8)

EFFECTIVE DATE: January 1, 2011, except for the financial history measurement program requirements, which are effective July 1, 2011, and provisions regarding impounded vehicles and notices to lienholders of auto policy cancellations, which are effective October 1, 2010.


The act 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 (1) the policyholder asks or (2) using the program reduces the insured's premium under the insurer's filed rates and rules.

The act 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.

Program Filing Requirements

The act 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 the impact of credit information and public records on insurance rates over time.

The act 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 is exempt from disclosure under the Freedom of Information Act.

The act 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 act authorizes the commissioner to request that an insurer provide a financial history measurement for a set of test examples reflecting various characteristics.

Disclosure to Insurance Applicant

When anyone applies for a policy, the act 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 of a rate quote requested by such applicant, if the applicant's credit history has been harmed by 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.

The insurer also must give each policy purchaser a written disclosure, by the date the policy is issued, that:

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 regarding the use of credit, in a form determined by the commissioner.

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

Prohibited Practices

The act prohibits insurers from using the following characteristics of 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 being reviewed by a credit reporting company, 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 treats 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 act 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 on 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.

The act defines an “extraordinary life circumstance” as:

1. a catastrophic illness or injury;

2. a divorce;

3. the death of a spouse, child, or parent;

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 act 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 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 based on granting an exception.

Adverse Actions Due to Credit History

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

Under the act, an “adverse action” includes:

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.

Cannot Deny Insurance Solely Due to Credit History

The act prohibits an insurer from denying, cancelling, or not renewing a personal risk insurance policy based solely on a person's (1) credit history or rating or (2) lack of credit history. The act 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.

Report to Commissioner

The act allows the commissioner to require an insurer to report to him, once the insurer's financial history measurement program has been in effect for two years. The report must include information demonstrating that the program results in rates that are supported by the data and 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.


Allocating Expenses on a Flat-Dollar Basis

The act requires an auto insurer to allocate certain expenses on a “flat-dollar basis” to a policy's base rate. 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 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 adding the flat-dollar amount after the insurer has applied any classification factors to the base rate.

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

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.

Territorial Rating

The term “territorial rating” refers to an insurer's practice of factoring in, when setting auto insurance rates, the principal place where a driver garages his or her vehicle. The Insurance Department, through administrative guidelines, currently 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.

The act codifies these guidelines by requiring that auto insurance rating plans using territorial classifications assign a weight of 75% to individual territorial loss-cost indication and 25% to the state-wide average loss-cost indication.


Prior law authorized the commissioner to adopt regulations concerning rating plans and the underwriting, classification, or rating of risks for auto insurance in Connecticut. The act instead requires him, by January 1, 2012, to adopt by regulation the Insurance Department's “most current guidelines and bulletins” regarding the underwriting, classification, or rating of auto insurance risks in Connecticut, including those regarding territorial rating.


By law, a vehicle is a “constructive total loss” if the cost to repair or salvage it, or both, equals or exceeds the vehicle's total value at the time of loss. Previously, when an insurer declared a covered, damaged vehicle a constructive total loss, the insurer had to calculate the vehicle's value for determining the settlement amount by using at least the average of the retail values given by (1) the National Automobile Dealers Association (NADA) used car guide and (2) one other automobile industry source that the insurance commissioner approved for such use. The act allows the insurer to use any other publicly available automobile industry source the commissioner approves for such use rather than the NADA guide as one of the two sources for determining the vehicle's average retail value.

The act also requires the insurer to give the claimant, by the time it pays the settlement amount:

1. a detailed copy of its calculation of the vehicle's constructive total loss value;

2. if applicable, a copy of any valuation report provided to the insurer by any automobile industry source that is not publicly available; and

3. a written notice disclosing that the claimant may dispute the settlement by contacting the Insurance Department.

The insurer's written notice must include in its final paragraph in at least 12-point type the following statement: “If you do not agree with this valuation, you may contact the Consumer Affairs Division within the Insurance Department. ” The notice must give the division's address and toll-free phone number and the department's Internet address.


Personal Insurance Rating Plans

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.

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