Auto insurance rates should be based on how people drive, not on personal or socioeconomic characteristics unrelated to driving risk. South Carolina should prohibit the use of credit history and other non-driving factors in auto insurance rating to promote fairness, transparency, and nondiscrimination in the insurance marketplace.
Summary
An Act relating to the regulation of private passenger motor vehicle insurance rates and underwriting practices to ensure premiums are based on driving-related risk factors rather than credit history or other socioeconomic characteristics.
Section 1. Fair Motor Vehicle Insurance Rating Standards
The following provisions establish standards governing the rating and underwriting of private passenger motor vehicle insurance.
Section 2. Definitions
For purposes of this Act:
- “Credit history” means any information bearing on a consumer’s creditworthiness, credit standing, or credit capacity, including a credit report or credit score.
- “Credit-based insurance score” means a rating or underwriting score derived in whole or in part from a consumer’s credit history.
- “Insurer” means an insurer authorized to write private passenger motor vehicle insurance in this State.
- “Private passenger motor vehicle insurance” means insurance coverage for motor vehicles required to be registered under the laws of this State and used primarily for personal, family, or household purposes.
Section 3. Prohibited Rating and Underwriting Factors
An insurer may not use any of the following factors in establishing eligibility, tier placement, premium rates, rating classifications, surcharges, discounts, cancellation, or nonrenewal of private passenger motor vehicle insurance:
- Credit history or a credit-based insurance score;
- Sex or gender;
- Marital status;
- Education level;
- Occupation or employment status;
- Homeownership status;
- ZIP code–level socioeconomic data;
- The presence of a household member who is not a licensed driver;
- Age, except as otherwise expressly permitted by State law; or
- Any other factor not directly related to an individual’s driving behavior or driving experience.
Section 4. Permissible Rating and Underwriting Factors
An insurer may base rating and underwriting decisions only on factors directly related to driving risk, including:
- A verified motor vehicle driving record, including at-fault accidents, traffic violations, and claims history directly related to vehicle operation;
- Annual mileage or vehicle usage patterns reasonably correlated with risk;
- Driving experience of the insured and other rated drivers;
- Vehicle characteristics, including make, model, year, safety features, and repair costs; and
- Other factors approved by the Director of the Department of Insurance by regulation, provided such factors are actuarially supported and demonstrably related to the risk of loss.
Any permissible factor must be supported by actuarial data and may not result in unfair discrimination among insureds.
Section 5. Disallowed Algorithms and Proxy Variables
An insurer may not use any algorithm, model, or external data source that directly or indirectly incorporates:
- A prohibited factor listed in Section 3 of this Act;
- A proxy or correlated variable that functions as a substitute for a prohibited factor; or
- Predictive models trained on data sets that include prohibited socioeconomic factors, unless the insurer demonstrates to the Department of Insurance that such factors have been fully excluded from the model’s predictive influence.
Section 6. Regulatory Oversight and Filings
- Each insurer shall certify to the Department of Insurance that its rating plans, underwriting guidelines, and algorithms comply with this Act.
- The Director may require insurers to submit documentation, statistical justifications, and descriptions of compliance measures and may disapprove, modify, or prohibit the use of any rate, rule, or model found to violate this Act.
Section 7. Enforcement and Remedies
- An insurer that violates this Act is subject to administrative penalties, restitution to affected policyholders, and corrective action as ordered by the Director of the Department of Insurance.
- Any person aggrieved by a violation of this Act may file a complaint with the Department.
Section 8. Applicability
This Act applies to all private passenger motor vehicle insurance policies issued, delivered, or renewed on or after January 1 following enactment. Nothing in this Act affects the use of credit information for other lines of insurance as otherwise permitted by State law.
Section 9. Effective Date
This Act takes effect January 1, 20__.
