Property and Casualty Insurance · Property Insurance · 6 min read
Credit, Privacy, and Terrorism Rules
- Identify how the Fair Credit Reporting Act regulates consumer reports, investigative reports, and adverse action procedures in property insurance underwriting.
- Explain the privacy protections, notice requirements, and safeguard rules established for financial institutions under the Gramm-Leach-Bliley Act.
- Describe the purpose, scope, mandatory offer rules, and loss-sharing mechanics of the federal terrorism insurance program under the Terrorism Risk Insurance Act.
Fair Credit Reporting Act and Underwriting
The Fair Credit Reporting Act is a federal law that promotes accuracy, fairness, and privacy in consumer reporting. It regulates consumer reports used for purposes such as insurance underwriting, including reports about credit, insurance claims, or driving history. Under federal law, insurers must have a permissible purpose to request a consumer credit report, and underwriting an insurance policy is explicitly recognized as one. Consumer reporting agencies gather this data, and federal law requires them to provide individuals with access to their own credit files upon request.
A consumer report may contain information about an individual's creditworthiness, character, general reputation, personal characteristics, or mode of living when supplied by a consumer reporting agency for a lawful purpose. An investigative consumer report contains information about a person's character, general reputation, personal characteristics, or mode of living obtained through personal interviews with people who know that person. Under federal law, an insurer that requests an investigative consumer report must give the applicant written notice no later than three days after making the request, though state law may impose additional requirements. After receiving this notice, the applicant may request a complete and accurate disclosure of the report's nature and scope.
Consumer reporting agencies face strict limits on reporting outdated negative data. These agencies are generally prohibited from reporting bankruptcies older than 10 years, and they are generally prohibited from reporting most adverse credit information older than 7 years. When an individual identifies an error in their file, consumer reporting agencies investigate the dispute. Companies that furnish disputed information to reporting agencies, including insurance companies when applicable, also have legal duties to investigate and correct inaccurate information.
| Feature | Standard Consumer Report | Investigative Consumer Report |
|---|---|---|
| Primary Source of Data | Consumer reporting agencies may compile credit, insurance claims, driving, and public-record information. | Personal interviews with neighbors, friends, or associates |
| Advance or Timely Written Notice | Federal law does not generally require advance notice merely because an insurer requests an ordinary consumer report for a permissible underwriting purpose. | Written notice required no later than three days after the request |
| Applicant Right to Scope Details | Applicant may request access to file from credit bureau | Applicant may request complete disclosure of nature and scope |
Common mistakes
- Thinking that standard homeowners policies fall under the federal Terrorism Risk Insurance Act, when personal lines are completely excluded from the program.
- Assuming that an adverse action only means denying an application, when charging a higher premium or canceling a policy based on a consumer report also qualifies as an adverse action.
- Believing that an investigative consumer report is simply a standard credit check, when it specifically involves personal interviews with an applicant's neighbors, friends, or associates.
- An adverse action notice directs the consumer to the reporting agency for a free report and a dispute; consumers may also dispute eligible information directly with the company that furnished it.
Key points
- The Fair Credit Reporting Act regulates consumer reports, including reports about credit and insurance claims, and recognizes insurance underwriting as a permissible purpose for obtaining a report.
- Investigative consumer reports gather data through interviews with associates or neighbors and require written notice to the applicant no later than three days after the request.
- Taking an adverse action based on a consumer report requires a notice identifying the reporting agency and advising the consumer that they may request a free copy of the report from that agency within 60 days and dispute inaccurate or incomplete information.
- The Gramm-Leach-Bliley Act requires financial institutions, including insurance entities, to protect nonpublic personal information through administrative, physical, and technical safeguards.
- Insurers must give privacy notices outlining data collection and sharing policies to customers and must provide opt-out notices before sharing nonpublic personal information with nonaffiliated third parties, subject to legal exceptions.
- The Terrorism Risk Insurance Act creates a federal backstop sharing commercial property and casualty terrorism losses certified by the Secretary of the Treasury in consultation with other federal officials.
- Under the federal terrorism program, commercial insurers must offer terrorism coverage on terms not materially different from other coverages, while personal lines policies like homeowners remain excluded.
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