Maine Issues Bulletin on Insurers’ Adverse Action Notices

The Maine Bureau of Insurance recently issued a bulletin on the topic of insurance scoring and adverse action notices.

The bulletin 406, “Insurance Scoring – Adverse Action Notices,” was addressed to insurers in Maine that use credit information in underwriting or rating personal policies. Maine Insurance Superintendent Eric Cioppa said in the Aug. 25 bulletin that the content of some insurers’ adverse action notices has been “a source of significant consumer confusion.”

Cioppa describes adverse action as “a denial or cancellation of, an increase in any charge for or a reduction or other adverse or unfavorable change in the terms of coverage or amount of any insurance, existing or applied for.”

The Maine Insurance Code requires that an insurer send its applicant or customer a notice when the company takes adverse action based on credit information. The notice must be in sufficiently clear language and include a description of up to four factors that were the primary influences of the adverse action.

The bulletin notes that “standardized credit explanations” from credit reporting agencies and other sources of credit data are deemed to comply with this requirement.

The bulletin said insurers often rely on credit reporting agencies and scoring model vendors to send them the factors and that this process is automated. But this can result in some insurers listing four factors regardless of their influence – negative, neutral, or positive. The bulletin warns that insurers that do so may violate the statute in two ways:

First, a positive or neutral factor is generally not a principal reason for an adverse action. If such a factor is mentioned, the insurer must provide a reason.

Second, the statute does not require that every notice include four factors. If only two factors negatively affected the insurer’s decision, only those should be included. The bulletin also notes that if an applicant or insured inquires about the factors, the insurer should explain to its customer what happened in clear terms. And if the insurer cannot provide this explanation itself, it should get that information from the reporting agency or other vendor.