Ohio Miscellaneous Regulatory Material DEPARTMENT OF INSURANCE BULLETINS GUIDELINES CONCERNING THE USE OF CREDIT HISTORY AND CREDIT SCORES	Effective Date November 22, 2002

This bulletin is intended to provide property and casualty insurers with guidance to comply with Ohio law with respect to the use of credit history and credit scores in underwriting and rating. This bulletin is limited to personal lines coverage as defined in R.C. §3937.03(C)(1)(b).

As used in this bulletin:

(1) "Credit history" means any written, oral, or other communication of any information bearing on a consumer's creditworthiness, credit standing, or credit capacity that is used or expected to be used, or collected in whole or in part, for the purpose of serving as a factor in determining rates, placement within a tier or with an affiliated company, or eligibility for coverage.

(2) "Credit score" means a number or rating that is derived from an algorithm, computer application, model or other process that is based in whole or in part on credit history. The term "insurance score" has the same meaning as the term "credit score."

R.C. §3901.20 prohibits insurers from engaging in unfair or deceptive acts. R.C. §3901.21 defines as an unfair and deceptive act the following unfair discriminatory conduct:

(M) Making or permitting any unfair discrimination between individuals of the same class and of essentially the same hazard in the amount of premium, policy fees, or rates charged for any policy or contract of insurance, other than life insurance, or in the benefits payable thereunder, or in underwriting standards and practices or eligibility requirements, or in any of the terms or conditions of such contract, or in any other manner whatever.

R.C. §§3937.02(A) and 3935.03(C) set forth the factors an insurer or rating organization may consider in establishing rates for property and casualty insurance. R.C. §3937.02(C) provides that risks may be grouped by classification for the establishment of rates and minimum premiums, and states:

Classification rates may be modified to produce rates for individual risks in accordance with rating plans which establish standards for measuring variations in hazards or expense provisions, or both. Such standards may measure any differences among risks that can be demonstrated to have a probable effect upon losses or expenses.

Paragraph (D) of §3937.02 further provides: "Rates shall not be excessive, inadequate, or unfairly discriminatory."

The Department interprets these sections to allow for the use of credit history and credit scores in underwriting and rating personal lines coverage. However, in order to comply with the foregoing sections, insurers must abide by the following guidelines:

1) Insurers must establish that credit history and credit scores used in underwriting or rating determinations are valid risk characteristics and are used in accordance with actuarial principles and standards of practice.

2) If a consumer has no available credit history (known as a "no hit") or has insufficient credit history to develop a credit score (known as a "no score"), the consumer must be underwritten and rated in accordance with actuarial principles and standards of practice.

3) Insurers must not use credit history or credit scores for arbitrary, capricious or unfairly discriminatory purposes. Credit history and credit scores may not be based on race, color, religion, national origin, sex, marital status, handicap, or age.

4) Insurers must maintain, implement and make available standards concerning how credit history and credit scores affect underwriting and rating decisions. Insurers must file with the Department all risk classification criteria and rating manuals that relate to credit history and credit scores.

5) If a credit scoring model is modified or if its use in determining rates or rating plans is modified, the insurer must re-file risk classification criteria and rating manuals with the Department, and must re-establish that the credit scores are valid risk characteristics and are used in accordance with actuarial principles and standards of practice.

J. Lee Covington II
Director of Insurance