Date:June 16, 1997
To:Property and Casualty Insurance Companies
From:Josephine W. Musser, Commissioner of Insurance
Subject:The Use of Credit Reports In Underwriting Personal Auto and Homeowner’s Policies

In recent years, personal lines insurers have begun using credit history information to select and sometimes nonrenew homeowner's and automobile insurance consumers. This bulletin is the result of this office’s review of the use of credit information in the personal lines underwriting process in Wisconsin and provides our position regarding the use of credit information in underwriting personal lines property and casualty business.

Insurers may use credit information as one of the criteria they consider when underwriting personal lines insurance. However, it is the position of this office that insurers should not use credit information, whether they use credit reports or credit scoring mechanisms, as the sole reason to refuse an application, cancel a new insurance policy in its first 60 days of coverage, or nonrenew an existing policy.

Additionally, in order to avoid potential violations of s. 628.34, Wis. Stat., when using credit information in personal lines underwriting, insurers should consider implementing at least the following procedures:

  1. The insurer should have written underwriting criteria on how credit information affects the underwriting decision. The criteria needs to include quantifiable underwriting standards. For example, an underwriting criteria explaining that "a few late payments may indicate a credit problem" would be too subjective.
  2. When the insurer uses credit information, it should disclose to the applicant/insured the items on the credit report which resulted in the underwriting decision.
  3. The insurer should consider any information received from the applicant/insured about any inaccuracy contained on his or her credit report and make a determination as to whether it should rely upon the credit report in question in making its underwriting decision. The insurer should not wait more than 30 days for the credit bureau to make a determination whether it will correct inaccurate or incomplete items contained on a credit report.
  4. The insurer should consider and establish guidelines relating to the timeliness and applicability to the risk being insured of the credit information it utilizes.
  5. The insurer, if it uses credit information only in certain circumstances, may not do so on an unfairly discriminatory basis. The circumstances must substantially relate to the topic of credit history as an underwriting criteria.
  6. The insurer should disclose on its insurance application that it may/will gather credit information and list the circumstances when a credit report will be ordered.

Any questions on the above may be referred to Phil Kress (608-266-0430) or Susan Ezalarab (608-266-8885) of my staff.

Thank you.