Massachusetts Division of Insurance
Credit Insurance
For the 2018 Calendar Year
Gary D. Anderson
Commissioner of Insurance
 Acknowledgements
The following report was prepared by Kristen K. McLaughlin of the Health Care Access Bureau
(“HCAB”), under the supervision of Kevin P. Beagan, Deputy Commissioner, HCAB. The report
is primarily based on submissions from insurance companies reflecting the experience of insurers
offering credit insurance in Massachusetts. Unless otherwise noted in the report, references to
“credit insurance” include credit life insurance, credit disability income insurance, and credit
involuntary unemployment insurance.
The Division makes all appropriate efforts to check the completeness and consistency of data
reported by insurance companies and their statistical agents but relies on insurers to ensure
the accuracy of all reported information.
Page ii
 TABLE OF CONTENTS
Title Page
Acknowledgements ii
Section 1: Overview of Credit Insurance 1
Section 2: Data and Reporting Requirements 4
Section 3: Credit Life Insurance 5
Section 4: Credit Disability Income Insurance 8
Section 5: Credit Involuntary Unemployment Insurance 11
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Section 1: Overview of Credit Insurance
Credit insurance is a line of insurance coverage that may be offered to debtors of a lending
organization for lines of credit other than a residential first mortgage (also known as “first lien on
a residential property”). 1 Depending on the coverage purchased, credit insurance may pay all of a
debt or the required minimum periodic payments. Under Massachusetts law, it is illegal for a lender
to require a person to buy credit insurance as a condition of obtaining a loan. 2 Potential insureds
are required, by regulation, to receive certain disclosure materials prior to any such coverage
becoming effective. 3
This report describes credit insurance offered by licensed or authorized insurers and does not
address non-insurance banking products, such as debt cancellation or debt suspension products,
which are considered to be bank services.
Types of Credit Insurance
Credit Life Insurance
Credit life insurance is designed to pay off a specific debt in the event of the death of the insured.
Unlike traditional life insurance, the beneficiary on the credit life insurance policy is the entity
who offers the credit (the “creditor”), not a friend or family member of the insured. Credit life
insurance in Massachusetts is governed by the following standards set forth in
M.G.L. c. 175, §110:
(1) the death benefit may not be more than $125,000,
(2) the insurance may not be for more than a 15-year period,
(3) the insurance may only be for the remaining outstanding balance of a debt, and
(4) the coverage ends when the debt is discharged.
Pursuant to M.G.L. c. 175, §117C, an insurance company’s credit life losses in relation to its earned
premium, called the loss ratio, must be equal to at least 50 percent. Pursuant to this statute, an
insurer is required to report its credit life insurance premium and loss experience annually.
Companies whose loss experience is credible but did not meet the statutorily required loss ratio
are required to file revised rates which meet the 50-percent standard.
1
As authorized under Chapter 303 of the Acts of 1988, credit insurance is to be used with a “loan for personal, family
or household purpose, except in the case of a loan secured by a first lien on real property” (M.G.L. c. 255, §12G);
“retail installment contract” (M.G.L. c. 255B §10); “premium finance agreement” (M.G.L. c. 255C, §14A); or
“retail installment sale agreement or revolving credit agreement” (M.G.L. c. 255D, §26).
2
See M.G.L. c. 255, §12G; M.G.L. c. 255B, §10; M.G.L. c. 255C, §14A; and M.G.L. c. 255D, §26.
3
See 211 CMR 143.00.
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Credit Disability Income Insurance
Credit disability income insurance, also known as credit accident and sickness insurance, is
designed to pay a monthly amount that is never less than the minimum monthly payment required
under the debt agreement. Unlike traditional disability insurance, the beneficiary is the creditor
and payments are made to the creditor instead of to the covered person. Credit disability income
insurance may be offered in Massachusetts only in accordance with the following standards set
forth in M.G.L. c. 175, §110:
(1) the monthly benefit is equal to the loan’s minimum monthly payment,
(2) there may be an elimination period before a benefit is paid, and
(3) the benefit may or may not be retroactive.
Pursuant to M.G.L. c. 175, §117C, an insurance company’s loss ratio for credit disability income
insurance must equal at least 55 percent. An insurer is required to report its credit disability income
insurance premiums and claims annually. Companies whose claims experience is credible but did
not meet the statutorily required loss ratio must file revised rates which meet the 55-percent
standard.
Credit Involuntary Unemployment Insurance
Credit involuntary unemployment insurance is designed to pay a monthly amount that is never less
than the minimum monthly payment under the debt agreement. Unlike traditional involuntary
unemployment insurance, the beneficiary is the creditor and payments are made to the creditor
instead of to the covered person. Credit involuntary unemployment insurance may be offered in
Massachusetts only in accordance with the following standards set forth in M.G.L. c. 175, §110:
(1) the monthly benefit is equal to the loan’s minimum monthly payment,
(2) there may be an elimination period before a benefit is paid, and
(3) the benefit may or may not be retroactive.
Pursuant to section M.G.L. c. 175, §117D , an insurance company’s loss ratio for credit
involuntary unemployment insurance must equal at least 60 percent. An insurer is required to
report its credit involuntary unemployment insurance premiums and claims annually. Companies
whose claims experience is credible but did not meet the statutorily required loss ratio must file
revised rates which meet the 60-percent standard.
Credit Property Insurance
Credit property insurance is designed to pay the outstanding balance under a debt agreement in the
event the covered property is destroyed by specific named perils, such as an accident or theft.
Usually this product does not have any up-front deductible.
Although the rates used for credit property insurance must be actuarially supportable when filed
with the Division, there is no statutorily required loss ratio for this product. Thus, there is no data
collected on this product for this report.
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Reporting by Classes of Business
The rates to be used for credit life and credit disability income insurance offered through the Motor
Vehicle Dealers (“MVD”) class of business for auto-related loans are set by the Division annually
using the last three available years of experience. Division Bulletin 2016-15 identifies the rates
applying from 2017 through 2019, based on 2013-2015 experience. 4 For all other classes of
business, insurers must submit rate filings to the Division for a specific line that comply with the
statutorily defined loss ratio standards, as described above. In order to differentiate MVD credit
insurance from all other credit insurance, the Division requires insurers to maintain and report the
experience of these lines separately.
4
Pursuant to M.G.L. c.175, s. 117C (b) (C) (4) (iii), the commissioner shall triennially compute the deviated case
rates for credit life and credit accident and health insurance sold through motor vehicle dealers.
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Section 2: Data and Reporting Requirements
Data Requirements
In accordance with M.G.L. c. 175, §117C(b) each insurer is required to file claims experience and
loss ratio data annually. The Commissioner of Insurance is required to provide a summary of the
information reported by companies. When submitting information, insurers are to report claims
and premium data and calculate a loss ratio in the following manner:
Incurred Claims = Total credit insurance claims paid during the experience period
adjusted for changes to the credit insurance claim reserve
Earned Premiums = Actual earned premiums
Loss Ratio = Incurred claims
Earned premiums
Reporting Requirements
The Division has requested that companies submitting credit insurance information report
separately for credit life, credit disability income, and credit involuntary unemployment insurance.
Within the credit life and credit disability income reports, the Division further has requested that
information be reported separately for the MVD and non-MVD classes of business. 5 The Division
also requested that companies report data for each individual product offered within a line of
coverage so that the loss ratio of each individual product may be compared to the applicable
statutory loss ratio requirement.
5
This information was not requested for credit involuntary unemployment insurance because the Division does not
set rates for any class of business within that line.
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Section 3: Credit Life Insurance
Reported Experience
The following represents the experience reported by the 17 companies submitting reports for
credit life insurance business in force between 2016 and 2018.
Motor Vehicle Dealer (MVD) Class of Business
Total
2016 2017 2018 2016-2018
Direct Premium Earned 149,778 91,615 55,192 296,585
Direct Losses Incurred 102,139 27,097 23,683 152,919
Loss Ratio 68.19% 29.58% 42.91% 51.56%
All Other Classes of Business
Total
2016 2017 2018 2016-2018
Direct Premium Earned 2,043,910 1,903,290 1,700,180 5,647,380
Direct Losses Incurred 692,937 576,356 495,620 1,764,913
Loss Ratio 33.90% 30.28% 29.15% 31.25%
Motor Vehicle Dealer (MVD) Class and All Other Classes Combined
Total
2016 2017 2018 2016-2018
Direct Premium Earned 2,193,688 1,994,905 1,755,372 5,943,965
Direct Losses Incurred 795,076 603,453 519,302 1,917,831
Loss Ratio 36.24% 30.25% 29.58% 32.27%
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Analysis of Data
Credit life insurance earned premiums decreased by $239,533, or 12.01%, from 2017 to 2018.
Premiums for the MVD class of business decreased by $36,424, and premiums for other credit life
insurance business decreased by $203,110. Incurred claims decreased by $84,151 from 2017 to
2018.
Comparison to Statutory Standards
Credit life insurance products are required to be written at the 50% loss ratio. The 2018 aggregate
loss ratio was 42.91% for the MVD line of business and 29.15% for the non-MVD line of business.
Credit Life Loss Ratios
80.00%
70.00%
60.00%
50.00% Statute
40.00% MVD
30.00% Non-MVD
20.00% Combined
10.00%
0.00%
2016 2017 2018
Evaluation of the Loss Ratio Results
As previously noted, the Division develops deviated rates for the MVD line of business every three
years based on the most recent three-year period experience, and these time lags can affect the loss
ratios of this business. The Division issued Bulletin 2016-15 on November 29, 2016 to set the
credit life rates for 2017-2019.
For the non-MVD line of business, each of the company’s submitted earned premium and claims
information was reviewed individually to ensure credibility of the reported information. Where
any company’s loss ratio experience fell below the statutory requirement, companies were
instructed to submit rate filings to revise rates to come into compliance with the statutory
requirement.
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Declining Nature of Credit Life Insurance
The following chart shows credit life insurance earned premiums by calendar year for the period
from 2008 through 2018. It indicates the declining nature of credit life insurance.
Credit Life Earned Premiums
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
MVD EP
5,000,000 Non-MVD EP
Combined EP
4,000,000
3,000,000
2,000,000
1,000,000
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
It is believed that credit life policies that are issued by insurance companies are declining because
they are being replaced by debt cancellation products that are offered by banking organizations.
Debt cancellation products are not considered to be insurance and are not subject to the Division’s
oversight.
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Section 4: Credit Disability Income Insurance
Reported Experience
The following represents the experience reported by the 17 companies submitting reports for credit
disability income insurance business in force between 2016 and 2018:
Motor Vehicle Dealer (MVD) Class of Business
Total
2016 2017 2018 2016-2018
Direct Premium Earned 229,040 157,097 90,539 476,676
Direct Losses Incurred 90,087 30,658 24,789 145,533
Loss Ratio 39.33% 19.52% 27.38% 30.53%
All Other Classes of Business
Total
2016 2017 2018 2016-2018
Direct Premium Earned 3,880,461 3,634,393 3,183,767 10,698,621
Direct Losses Incurred 1,516,596 1,602,450 1,514,057 4,633,103
Loss Ratio 39.08% 44.09% 47.56% 43.31%
Motor Vehicle Dealer (MVD) Class and All Other Classes Combined
Total
2016 2017 2018 2016-2018
Direct Premium Earned 4,109,501 3,791,490 3,274,306 11,175,297
Direct Losses Incurred 1,606,683 1,633,108 1,538,845 4,778,636
Loss Ratio 39.10% 43.07% 47.00% 42.76%
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Analysis of Data
Credit disability income insurance earned premiums declined by $517,184, or 13.64%, from
2017 to 2018. Premiums for MVD decreased by $66,558, and premiums for all other credit
disability income insurance decreased by $450,626. Incurred claims decreased by $94,263, or
5.77%. Incurred claims on the MVD class of business decreased by $5,869, while the incurred
claims on the other credit disability income insurance decreased by $88,393.
Comparison to Statutory Standards
As presented in the following graph, the reported loss ratios for credit disability income insurance
in aggregate are below the statutorily required loss ratio standards. Credit disability income
insurance products are required to be written at a 55% loss ratio. The 2018 aggregate loss ratio
was 27.38% for the MVD line of business and 47.56% for all non-MVD lines of business. Both
the MVD class of business and the non-MVD class of business are below the required level.
Credit Disability Income Loss Ratios
60.00%
50.00% Statute
40.00% MVD
30.00% Non-MVD
20.00% Combined
10.00%
0.00%
2016 2017 2018
Evaluation of the Loss Ratio Results
As previously noted, the Division develops deviated rates for the MVD line of business every year
based on the most recent three-year period experience, and these time lags can affect the loss ratios
of this business.
For the non-MVD line of business, each of the companies’ submitted earned premium and claims
information was reviewed individually to ensure credibility of the reported information. Where
any company’s loss ratio experience fell below the statutory requirement, companies were
instructed to submit rate filings to revise rates to come into compliance with the statutory
requirement.
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Declining Nature of Credit Disability Income Insurance
The following chart shows credit dis