Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

F I S C A L I M P A C T R E P O R T

SPONSOR Leavell

DATE TYPED 3/18/05 HB

SHORT TITLE Personal Insurance Credit Information

SB 560/aSJC/aSFl#1/aSFl#2/aHJC

ANALYST Wilson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

Relates to SB 359

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Regulation Commission (PRC)

SUMMARY

Synopsis of HJC Amendment

The House Judiciary Committee amendment removes the Senate Floor amendment #2.

Synopsis of SFl#2 Amendment

The Senate Floor amendment #2 to Senate Bill 560 adds an

insurer or group of affiliated insurers

authorized to do business in New Mexico that uses credit information to underwrite, rate or re-

new personal insurance coverage shall not consider credit card information.

Synopsis of SFl#1 Amendment

The Senate Floor amendment #1 to Senate Bill 560 amends the consumer protection notification

and disclosure form. Deletes language that a credit bureau will not change negative credit infor-

mation they have determined to be correct. Deletes language that credit bureaus will include a

consumer statement pertaining to negative credit information each time a credit report is re-

quested. The amendment adds language requiring the inclusion of names, phone numbers and

web sites of national credit bureaus. The amendment deletes references to federal law regarding

a consumer’s right to a free credit report.

Senate Bill 560/sSJC/aSF#1/aSF#2/aHJC -- Page 2

Synopsis of SJC Amendment

The Senate Judiciary Committee amendment more clearly defines the time an insurer is required

to grant an extraordinary life circumstances exception. Once that time is exhausted, the insurer is

not required to grant another exception for the same extraordinary life circumstance. The

amendment further defines an insurer’s duty to disclose to the consumer if credit information is

being used to calculate an insurance score, either at the time of the application or first renewal

subsequent to December 31, 2005. The amendment provides a form for notifying consumers of

their rights and protections under New Mexico State law regarding insurance coverage, dividend

benefits, rates, surcharges, discounts and credit scores.

Synopsis of Original Bill

Senate Bill 560 regulates the use of credit information in the underwriting and rating of automo-

bile, homeowners and other types of personal insurance. This bill specifically bans the use of

credit information in the rating of automobile insurance policies.

This bill contains a number of consumer protections, including requiring insurers to:

Treat consumers with little or no credit history as if they had average credit

Disclose to consumers that their credit information is being used as well as list the key

negative items in their credit reports

Provide exceptions for consumers whose credit has been negatively impacted by medical

and other extraordinary life circumstances beyond their control

Rectify premium charges and other actions if credit report errors are uncovered

Ignore from credit reports all credit inquiries made by consumers.

Significant Issues

In recent years most insurance companies have been using credit report information to help them

determine whether to accept, and how much premium to charge, applicants for automobile and

homeowners insurance. Insurers do so because many studies indicate a correlation between con-

sumers’ credit standing and their costliness as insurance customers.

Many consumers and consumer advocate groups oppose this use of credit information. Consum-

ers often disbelieve that their credit history can be an indicator of whether they will have an

automobile or homeowners’ insurance claim. Consumer advocates often believe that various

low-income and ethnic groups have poorer than average credit histories and are further disadvan-

taged by having to pay higher than average premiums due to credit rating.

The Superintendent of Insurance convened a task force in 2002 to advise him on this issue. The

task force concluded its study in October 2002 and submitted to the Superintendent a list of rec-

ommendations for regulating the use of credit report information in the rating and underwriting

of both automobile and homeowners insurance in order to protect consumers from potential

FISCAL IMPLICATIONS

The Insurance Division of the PRC has the financial resources to handle the provisions of this

Senate Bill 560/sSJC/aSF#1/aSF#2/aHJC -- Page 3

bill as part of its ongoi9ng responsibilities.

ADMINISTRATIVE IMPLICATIONS

This bill allows insurers to immediately use credit-related rating models upon filing those models

with the Insurance Division, subject to the Superintendent’s subsequent review and potential dis-

approval. This “file and use” provision is an exception to the “prior approval” requirements of

the Insurance Rate Regulation Law.

RELATIONSHIP

SB 560 relates to SB 359, Prohibit Certain Car Insurance Cancellations.

DW/yr