Fair Credit Reporting Act (FCRA)
Federal law governing collection, accuracy, and use of consumer credit information—applicable to insurers using credit-based insurance scores in underwriting.
FAQs
- Must an insurer provide an adverse action notice every time it uses a credit score in rating?
- An adverse action notice is required when a consumer's application results in an adverse outcome attributable to the consumer report—being declined, charged a higher rate than the applicant would otherwise receive, or offered less favorable terms based on the credit report. It is not required for every instance of credit score use; it is required when the credit information contributes to an unfavorable underwriting or rating decision.
- Can an insurer use information from social media as part of underwriting?
- Social media use in underwriting is a legally complex area. If the insurer uses a third party to compile social media information into a consumer report, that report is likely subject to FCRA. If the insurer accesses publicly available social media directly, FCRA may not apply, but state insurance laws and unfair discrimination prohibitions still do. Using social media information as a proxy for protected characteristics creates significant algorithmic bias exposure.
- How long must an insurer retain adverse action notices for FCRA compliance?
- FCRA does not specify a specific retention period for adverse action notices, but the statute of limitations for FCRA claims (two years from violation discovery, five years from violation) suggests retaining records for at least five years. Some state insurance regulations impose additional record retention requirements that may exceed this baseline.
Related Terms
Algorithmic Bias
Systematic unfair discrimination in AI or ML models disadvantaging protected classes—a critical compliance concern as insurers adopt predictive models.
Market Conduct Examination
A formal state insurance department examination reviewing an insurer's business practices—claims handling, underwriting, and producer oversight—for compliance.
Gramm-Leach-Bliley Act (GLBA)
Federal law requiring financial institutions, including insurers, to protect consumer financial information privacy and disclose their data-sharing practices.
Suitability
The regulatory requirement that insurance products recommended to clients are appropriate for their financial situation, coverage needs, and risk tolerance.