Court decision on scoring may spur insurers to reconsider.

A decision by the U.S. Ninth Circuit Court of Appeals finds insurers using credit-based insurance scoring in underwriting must issue adverse action notices to customers much more frequently than they currently do.

Under the federal Fair Credit Reporting Act, insurance companies must send adverse action notices to consumers whenever insurance premiums or rates are increased based on a credit score. In deciding two similar cases on appeal, the court ruled FCRA requires an adverse action notice be sent whenever a higher rate is charged because of credit information--including when the policy is initially written or when it is renewed.

The court also ruled the adverse action notice is required whenever a consumer would have received a lower insurance rate had his or her credit information been more favorable, regardless of whether the credit rating is above or below average. In addition, the court ruled that charging more for insurance because no or insufficient credit information is available also requires an adverse action notice.

"The Ninth Circuit decision takes the most expansive definition one could possibly imagine of terms such as 'adverse action,'" National Association of Mutual Insurance Companies public policy director Robert Detlefsen said.