Insurance Regulation
Insurance is regulated, for the most part, at the state level, meaning that each state has the
right to determine what insurance policies are sold, how they are sold, by whom they are sold,
and even what types of provisions are required in each type of policy.
There are also federal laws that affect the insurance industry. One of the most important is the
Fair Credit Reporting Act.
Fair Credit Reporting Act
The FCRA is designed to protect the privacy of consumer report information and to guarantee
that the information supplied by credit reporting agencies is as accurate as possible. Consumer
reports may include information on an applicant’s credit history, medical conditions, driving
record, criminal activity, and hazardous sports. Amendments to the FCRA, which went into effect
in 1997, increase the legal obligations of insurers who use consumer reports.
When an adverse action is taken – such as the decision to deny insurance, increase rates, or
terminate a policy- and it is based solely or partly on information in a consumer report, the FCRA
requires the agent to provide a notice of the adverse action to the consumer. This applies to
new applicants as well as current policyholders. The notice must include:
The name, address, and telephone number of the credit reporting agency that supplied the
consumer report, including the toll-free telephone number for credit bureaus that maintain files
nationwide
A statement that the credit reporting agency that supplied the report did not make the decision
to take the adverse action and cannot give the specific reasons for it
A notice that the individual’s right to dispute the accuracy or completeness of any information the
credit reporting agency furnished, and the consumer’s right to a free credit report from the credit
reporting agency upon request within 60 days.
Disclosure of this information is important because some consumer reports may contain errors.
The adverse action notice is required even if the information in the consumer report was not the
main reason for the denial or rate increase. Even if the information in the report played only a
small part in the overall decision, the applicant must still be notified.
There are legal consequences for insurers who fail to get an applicant’s permission before
requesting a consumer report containing medical information or who fail to provide required
disclosure notices. The FCRA allows individuals to sue insurers for damages in federal court. A
person who successfully sues is entitled to recover court costs and reasonable legal fees. The
law also allows individuals to seek punitive damages for deliberate violations. In addition, the
Federal Trade Commission, other federal agencies, and the states may sue insurers for noncompliance and obtain civil penalties.