Legislature(2015 - 2016)BARNES 124

04/08/2016 03:15 PM House LABOR & COMMERCE

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Moved CSSB 121(JUD) Out of Committee
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**Streamed live on AKL.tv**
         SB 127-INSURER'S USE OF CREDIT HISTORY/SCORES                                                                      
3:34:56 PM                                                                                                                    
CHAIR OLSON announced  that the final order of  business would be                                                               
SENATE  BILL NO.  127, "An  Act relating  to actions  by insurers                                                               
based on credit history or  insurance score; and providing for an                                                               
exception to  consideration by  an insurer  of credit  history or                                                               
insurance score."                                                                                                               
3:35:10 PM                                                                                                                    
LAUREN RASMUSSEN,  staff, Senator  Charlie Huggins,  Alaska State                                                               
Legislature,  advised that,  when Alaskans  apply for  a personal                                                               
automobile  or homeowner's  insurance policy,  there are  several                                                               
variables insurance  companies take into consideration  to assess                                                               
risk  such  as,  motor  vehicle record,  good  student  discount,                                                               
marital  status, age,  and credit  history.   Under current  law,                                                               
credit history  is included when  underwriting new  policies, but                                                               
must be  removed at  the time  of the  policy renewal;  every two                                                               
years.   Currently, consumers can  elect to include  their credit                                                               
history at the  time of renewal, which requires  a time consuming                                                               
and  confusing  waiver  process,  often  resulting  in  consumers                                                               
seeing  an  increase in  their  rate,  which encourages  them  to                                                               
search for  lower rates; a  practice referred to in  the industry                                                               
as  "churning."    The  bill   also  requires  insurers  to  make                                                               
exceptions  to a  consumer's  rate  at the  time  of the  initial                                                               
policy -  and at policy renewal  - when the consumer's  credit is                                                               
adversely   impacted   by   extraordinary   life   circumstances.                                                               
Examples   of  extraordinary   life  circumstances   are  serious                                                               
illness,  injury,  military  deployment  overseas,  divorce,  and                                                               
involuntary  unemployment.   Ms.  Rasmussen  stated  that SB  127                                                               
fixes a  discrepancy in the law,  as Alaska is the  only state to                                                               
require  insurers  to  remove credit  history  when  rewriting  a                                                               
policy.  Finally, the bill has a zero fiscal note.                                                                              
REPRESENTATIVE LEDOUX  surmised that "churning" means  people are                                                               
going  to automobile  companies looking  for cheaper  prices, and                                                               
questioned why this is not a good idea.                                                                                         
MS. RASMUSSEN deferred to the Division of Insurance.                                                                            
3:39:25 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON inquired as to  why there is a statutory                                                               
requirement  to  remove  credit  history,  following  the  policy                                                               
period of two years.                                                                                                            
MS.  RASMUSSEN expressed  uncertainty as  to why  the legislation                                                               
was  written  in that  manner  approximately  10 years  ago,  and                                                               
offered to provide further information.                                                                                         
REPRESENTATIVE  HUGHES returned  to the  issue of  "churning" and                                                               
suggested that, after the two-year  policy period, the person can                                                               
receive a  cheaper rate  because other  companies can  access the                                                               
credit score  [to establish a  base rate].   She opined  that the                                                               
intent  is  to  "help  the marketplace"  and  asked  whether  her                                                               
assumption was correct.                                                                                                         
MS. RASMUSSEN answered yes.                                                                                                     
REPRESENTATIVE HUGHES asked what is  happening in other states in                                                               
this regard.                                                                                                                    
MS. RASMUSSEN  said that Alaska  is the  only state to  not allow                                                               
credit  scoring  at  the  time   of  policy  renewal,  thus  this                                                               
legislation would put Alaska in line with the nation.                                                                           
REPRESENTATIVE  HUGHES asked  whether  more  consumers in  Alaska                                                               
will save money or pay more, as  a result of SB 127.  She further                                                               
asked  whether  an analysis  is  available  to determine  whether                                                               
there would be a savings to consumers overall.                                                                                  
MS. RASMUSSEN concurred  with the sponsor's belief  that the bill                                                               
will benefit the  majority of consumers, although  she is unaware                                                               
of any  supporting hard  data.   In other  states, she  said, "it                                                               
definitely does help the majority of insurance consumers."                                                                      
3:42:50 PM                                                                                                                    
CHAIR  OLSON recalled  that approximately  80-85  percent of  the                                                               
population  received  lower  rates.   He  pointed  out  that  the                                                               
insurance companies' information is proprietary.                                                                                
CHAIR OLSON opened public testimony.                                                                                            
3:43:36 PM                                                                                                                    
KRISTIE BABCOCK,  Independent Agent,  State Farm  Insurance, said                                                               
she  employs   eight  individuals   and  markets   insurance  and                                                               
financial services.   She  said her testimony  will focus  on the                                                               
impact of current  law on her customers, and how  SB 127 offers a                                                               
solution  to   the  difficult  situation  State   Farm  Insurance                                                               
customers  are facing.   Due  to the  difficulty of  the existing                                                               
law, she has dedicated one  staff member to deal exclusively with                                                               
the difficulty  created for  customers.   Even though  a customer                                                               
may  not have  had a  driving  [ticket] or  accident, at  renewal                                                               
their rate will  increase by 30-35 percent.   Ms. Babcock related                                                               
that it  is not  easy for  her customers  to understand  that the                                                               
rate occurs  because the  company can no  longer use  the factors                                                               
that were used  when the policy was initially written.   There is                                                               
the option  of a waiver,  which requires contacting  the customer                                                               
and  obtaining  the waiver  in  order  to  avoid the  large  rate                                                               
increase.  She related that she  works hard every day to overcome                                                               
the volatile rate  increase the [law] creates,  and sometimes her                                                               
office  just  can't  reach  the  customer  prior  to  their  rate                                                               
increase.  The  process is difficult for  frustrated customers to                                                               
understand.   She  relayed a  situational anecdote  to illustrate                                                               
the difficulties one of her customers experienced.                                                                              
MS. BABCOCK  referred to  "churning."   Although she  agreed that                                                               
competition is  a good thing,  current law only  allows insurance                                                               
companies  to  compete when  writing  new  policies.   She  again                                                               
described how a  renewal customer may get a better  rate on a new                                                               
policy from another company, but misses  out on the benefits of a                                                               
long  term  relationship  with  their  insurer.    Churning,  she                                                               
described,  is  not a  positive  impact  on  the economy  or  her                                                               
customers.  She  reiterated that a staff member  has a dedicated,                                                               
daily responsibility to  check a list and  determine pending rate                                                               
increases that will  effect customers with nothing  else on their                                                               
record.    The  customer  is   then  contacted  and  receives  an                                                               
explanation of  the waiver  process, which  results in  a reduced                                                               
premium 98-99 percent of the time.                                                                                              
3:49:49 PM                                                                                                                    
REPRESENTATIVE  LEDOUX asked  whether the  Division of  Insurance                                                               
requires  insurance companies  to look  at the  customer's credit                                                               
score and, if it is not available, to raise their premium.                                                                      
MS. BABCOCK deferred comment.                                                                                                   
MS.  BABCOCK concluded  that the  impact of  SB 127  would be  to                                                               
alleviate   the  dramatic   swings   in   rates,  eliminate   the                                                               
frustration and  cumbersome process  of a  waiver signed  at each                                                               
renewal,  and allow  consumers to  shop  with confidence  knowing                                                               
there is stability in the rating factors.                                                                                       
REPRESENTATIVE  JOSEPHSON  asked  about  the  intent  behind  the                                                               
legislation that  established the two-year period  and whether it                                                               
was to give a period of time to improve their credit history.                                                                   
MS.  BABCOCK  opined  that in  2003,  the  legislature  addressed                                                               
clarifying  whether  credit should  continue  to  be used  in  an                                                               
insurance rating for personal home  and automobile insurance, and                                                               
it was decided that credit data  would only be used initially [to                                                               
establish premiums], but  not for renewals.  In  addition, it was                                                               
intended that, after two years,  the company's retained, internal                                                               
data  would be  sufficient for  rating renewals.   Unfortunately,                                                               
she pointed out,  that hasn't worked, evidenced  by the increased                                                               
renewal premiums.                                                                                                               
REPRESENTATIVE LEDOUX  surmised that Ms. Babcock's  testimony was                                                               
that the compromise was possibly  because the insurance companies                                                               
would  have internal  data  to  rate the  policy.   However,  she                                                               
pointed  out  it appears  there  is  nothing requiring  insurance                                                               
companies to review credit reports.                                                                                             
3:53:24 PM                                                                                                                    
REPRESENTATIVE  HUGHES pointed  out  that when  a consumer  shops                                                               
around, their credit  score is used, they may be  offered a lower                                                               
rate,  and then  are required  to hassle  with signing  a waiver.                                                               
She asked for confirmation that  the average rate increase is 30-                                                               
35 percent.                                                                                                                     
MS. BABCOCK said  that at the time of renewal,  her customers may                                                               
experience an increase of 20-50 percent.                                                                                        
REPRESENTATIVE  HUGHES inquired  as  to whether  Ms. Babcock  was                                                               
losing customers after two years.                                                                                               
MS. BABCOCK  restated that there  is a  provision to allow  for a                                                               
manual  waiver  and  one of  her  employees  contacts  customers,                                                               
explains  the  situation  and  obtains   waivers  all  day  long.                                                               
However, many companies do not  provide that service.  Generally,                                                               
she said  she does not lose  customers unless they are  angry and                                                               
don't understand the process.                                                                                                   
REPRESENTATIVE KITO  posited whether,  if the bill  passes, State                                                               
Farm Insurance would use the  original credit information or look                                                               
at the customer's current credit score at renewal.                                                                              
MS. BABCOCK  answered that she  would look at the  current credit                                                               
3:56:58 PM                                                                                                                    
CINDA  SMITH,  GEICO  [Government Employees  Insurance  Company],                                                               
advised this  bill is  good for consumers,  and noted  that GEICO                                                               
does  not  use  credit  due  to the  unfairness  created  when  a                                                               
customer's rate goes up by  the percentage Ms. Babcock mentioned.                                                               
GEICO's management does not believe  that is fair, when there has                                                               
been no  change in  the accident  or traffic  conviction history;                                                               
therefore, GEICO refrains from offering  the lowest rate possible                                                               
at initial  business so that  the rate  stays lower which  is not                                                               
exactly fair to consumers either.                                                                                               
REPRESENTATIVE  LEDOUX  advised  she  represents  a  district  in                                                               
Anchorage  populated with  lower-income individuals  who may  not                                                               
have sterling credit ratings.  She  surmised it is better for her                                                               
constituents to not use credit  scores at all, and questioned how                                                               
this bill would be good for her constituents.                                                                                   
MS.  SMITH  responded that  credit  helps  the vast  majority  of                                                               
people.  In further response  to Representative LeDoux, Ms. Smith                                                               
advised that income is not a  factor in a person's credit rating,                                                               
in  fact, the  rating  is based  on the  quality  of the  credit.                                                               
Thus,  if  the lower-income  constituents  have  cared for  their                                                               
credit, this bill will benefit them, she said.                                                                                  
REPRESENTATIVE LEDOUX  pointed out that  lower-income individuals                                                               
may lose their  jobs more often and possibly  are more transient.                                                               
She  expressed her  belief that  when  comparing lower-income  to                                                               
higher-income  people,  lower-income   people  would  have  lower                                                               
credit scores.                                                                                                                  
3:59:19 PM                                                                                                                    
MS.  SMITH explained  that this  bill has  an extraordinary  life                                                               
change provision  which allows  that certain  circumstances would                                                               
not  be considered,  and people  experiencing extraordinary  life                                                               
changes would be given a neutral rating.                                                                                        
REPRESENTATIVE  JOSEPHSON surmised  customers  would  be given  a                                                               
neutral rating  if they  experienced one  of the  life conditions                                                               
described in the bill, but not if they have bad credit.                                                                         
MS. SMITH said correct.                                                                                                         
REPRESENTATIVE  LEDOUX  concluded that  GEICO  does  not use  the                                                               
credit scores  and insurance  companies are  not required  to use                                                               
credit scores.                                                                                                                  
MS. SMITH answered  that insurance companies are  not required to                                                               
use credit scores.                                                                                                              
REPRESENTATIVE LEDOUX offered the example  of a company using the                                                               
credit score  of a  customer with a  perfect driving  record. The                                                               
company does  not have to  raise their  rates, but it  chooses to                                                               
because it can't look at the  customer's credit score again.  She                                                               
asked whether she is correct.                                                                                                   
MS.  SMITH  deferred  comment  to an  actuary,  but  stated  that                                                               
Representative  LeDoux  is  correct  in  her  understanding  that                                                               
insurance  companies are  not  required to  use  a credit  score.                                                               
Insurance  companies  want  to  charge the  right  rate  to  each                                                               
person,  she explained,  therefore  the  determining factors  are                                                               
based upon  the individuals  known characteristics  that indicate                                                               
the likelihood of a loss.                                                                                                       
REPRESENTATIVE  LEDOUX  acknowledged  that the  process  actually                                                               
makes sense when  a driver purchases a new policy.    However, at                                                               
the time of  renewal, if the insurance company has  a client with                                                               
a  good driving  record who  pays  his/her premiums  in a  timely                                                               
manner,  why does  the insurance  company need  to look  at their                                                               
credit score, she questioned.                                                                                                   
4:01:53 PM                                                                                                                    
MS. SMITH  reiterated that use of  a credit score helps  the vast                                                               
majority of consumers.                                                                                                          
REPRESENTATIVE HUGHES  expressed that  she is  uncomfortable with                                                               
an implication  that low-income  people tend  to have  bad credit                                                               
more  often than  people who  are  not low-income;  in fact,  her                                                               
personal  experience  is  that  many people  of  low  income  are                                                               
working hard  and striving  to keep good  credit, thus  this bill                                                               
will  benefit   them.    Currently,  consumers   are  faced  with                                                               
increasing  rates,  and the  fact  that  some are  transient  may                                                               
impede the  ability of the  company to  track them down  in order                                                               
for  them to  sign the  waiver.   Representative Hughes  observed                                                               
that GEICO doesn't use credit  in Alaska, and asked whether GEICO                                                               
uses it in other states.                                                                                                        
MS. SMITH answered  yes; GEIGO management believes  the high rate                                                               
at renewal is unfair to the consumer.                                                                                           
4:03:33 PM                                                                                                                    
JEFF KINSEY, Actuary, State Farm  Insurance, offered that for the                                                               
many  reasons   previously  articulated,  State   Farm  Insurance                                                               
supports the passage of SB 127.                                                                                                 
CHAIR  OLSON asked  for the  percentage of  people who  receive a                                                               
lower rate by the use of credit scoring.                                                                                        
MR. KINSEY  responded that, with  regard to State  Farm Insurance                                                               
specifically, approximately 60 percent  of its policyholders, for                                                               
both  personal automobile  and homeowners,  entering their  third                                                               
year  of coverage,  receive a  rate increase,  when their  credit                                                               
information is stripped out at renewal.                                                                                         
4:05:06 PM                                                                                                                    
CHAIR OLSON asked about the  effect of initially using the credit                                                               
MR. KINSEY estimated that of  State Farm Insurance automobile and                                                               
homeowner  new  policies  written in  2015,  approximately  3,500                                                               
policyholders could see a rate increase in excess of 50 percent.                                                                
MS.  BABCOCK offered  that when  the policies  renew, 60  percent                                                               
have  a  rate  increase  because  the  credit  is  stripped  out.                                                               
Although, for  a certain percentage  the rate may stay  the same,                                                               
and some  may have their rates  go down when the  credit is taken                                                               
out.   She surmised that  80 percent of consumers  either benefit                                                               
or have no impact based on their credit.                                                                                        
CHAIR OLSON asked to exclude Alaska from the percentages.                                                                       
MR. KINSEY responded  that Alaska is consistent with  the rest of                                                               
the country,  whereby approximately  60 percent  of policyholders                                                               
benefit  by the  use of  credit, and  40 percent  are either  not                                                               
affected or see a higher premium considering the use of credit.                                                                 
REPRESENTATIVE LEDOUX  asked whether credit score  checks tend to                                                               
adversely affect  premiums of lower  income versus  higher income                                                               
MR. KINSEY  answered no;  in fact, studies  by the  Federal Trade                                                               
Commission (FTC) in  2007, and the Texas  Department of Insurance                                                               
in  2005, concluded  there  is no  relationship  with income  and                                                               
CHAIR  OLSON asked  whether Liberty  Mutual Insurance  and Safeco                                                               
Insurance  Companies  are  currently   using  credit  scoring  in                                                               
4:08:20 PM                                                                                                                    
GARY  STRANNIGAN,  spokesperson,  Liberty  Mutual  Insurance  and                                                               
Safeco  Insurance  Companies,  answered that  his  companies  are                                                               
using credit scoring in the same manner as State Farm Insurance.                                                                
4:016 PM                                                                                                                      
TIMOTHY  MAUDSLEY,  President,   Alaska  USA  Insurance  Brokers,                                                               
informed  the   committee  that  Alaska  USA   Insurance  Brokers                                                               
provides customers  with property,  casualty, and other  types of                                                               
insurance.   The brokerage fully  supports the passage of  SB 127                                                               
because  the bill  will remove  the requirement  for insurers  to                                                               
eliminate  the  credit-based  insurance  score  from  the  rating                                                               
process  after two  years.   This change  will provide  consumers                                                               
with  a  fair  and  accurate  rate  on  insurance  renewals,  and                                                               
eliminate confusion  due to policy  cancellations and  the burden                                                               
of  changing  carriers  to   maintain  preferred  insurance  rate                                                               
discounts.   He opined  that passage  of the  bill will  open the                                                               
Alaska insurance  market to additional insurance  companies which                                                               
will  increase  competition  to  great  benefit.    Mr.  Maudsley                                                               
strongly urged passage of SB 127.                                                                                               
4:10:46 PM                                                                                                                    
ARMAND   FELICIANO,   Lobbyist,    Property   Casualty   Insurers                                                               
Association  of America,  informed  the  committee that  Property                                                               
Casualty  Insurers Association  of  America is  a national  trade                                                               
organization  representing  insurers  in  Alaska.    For  reasons                                                               
previously  stated,   the  association  supports  SB   127.    He                                                               
predicted that it  will fix the market disruption,  and said that                                                               
the bill  includes "safeguard  provisions."   Addressing previous                                                               
questions,   he  said,   regarding   the  national   perspective,                                                               
approximately  28 states  have similar  laws as  Alaska with  the                                                               
exception of  "stripping the  credit after  two years,"  and some                                                               
states  implement a  variation.   In response  to whether  credit                                                               
scoring increases  or decreases  premiums, he  said the  State of                                                               
Arkansas  has   similar  credit  scoring  as   Alaska,  with  the                                                               
exception  of the  two  year  stipulation.   Since  2005, due  to                                                               
credit use, 3.1 million policyholders  saw the following results:                                                               
approximately  40 percent  received a  lower premium,  14 percent                                                               
receive  a  higher  premium,  and   another  42-45  percent  were                                                               
4:13:08 PM                                                                                                                    
CHIP  WAGONER,  Regulation  Specialist,  Division  of  Insurance,                                                               
Department  of   Commerce,  Community  &   Economic  Development,                                                               
advised  that  Michael Ricker  is  an  actuary for  property  and                                                               
casualty insurance matters for the Division of Insurance.                                                                       
REPRESENTATIVE  LEDOUX  restated  her   question  as  to  whether                                                               
insurance companies are  required to rely on credit, or  if it is                                                               
due to internal policies that causes a raise in premiums.                                                                       
4:14:02 PM                                                                                                                    
MICHAEL RICKER,  Actuary P/C,  Division of  Insurance, Department                                                               
of Commerce,  Community & Economic Development  (DCCED), answered                                                               
that  an insurer  is not  required  to consider  credit, but  the                                                               
insurers are  required to file  company rates and rules  with the                                                               
Division  of Insurance.   Once  filed,  the rates  and rules  are                                                               
approved.  The  credit can initially be used as  a variable, but,                                                               
in  accordance  with  rules, cannot  be  considered  at  renewal.                                                               
Further,  insurance companies  must  have one  set  of rates  and                                                               
rules applying to  those customers not signing a  waiver, and one                                                               
set of rates  and rules for those who do.   When the policyholder                                                               
either signs  or does not  sign the waiver, insurers  must adhere                                                               
to the appropriate  set of rates and rules; one  set includes the                                                               
use of credit and one set does not.                                                                                             
REPRESENTATIVE  LEDOUX suggested  that  insurers  could state  an                                                               
intent  to  use  the  credit   score,  with  respect  to  initial                                                               
policies, and  not use  it for renewal  purposes.   She concluded                                                               
there is  nothing that  is making insurers  raise the  premium as                                                               
long as they file with the division.                                                                                            
MR. RICKER  added that there  are insurers  who do not  deal with                                                               
the waiver  process, and at  renewal they simply take  credit out                                                               
for everyone and do not solicit  the waiver.  He pointed out that                                                               
the issue  is not that companies  are choosing to raise  rates at                                                               
renewal, the issue is that  consumers with good credit receive an                                                               
initial discount.  Once credit  is taken out of consideration for                                                               
determining   renewal  rates,   a  neutral   rate  is   assigned.                                                               
Therefore, at  renewal, the consumer  sees what appears to  be an                                                               
increase in premium;  without the benefit of  the credit discount                                                               
they pay the average rate.                                                                                                      
REPRESENTATIVE  KITO  asked  whether  there  are  general  things                                                               
individuals can  do to increase  their credit score  and decrease                                                               
their premiums.                                                                                                                 
MR. RICKER noted  that policies are different  for every company;                                                               
he advised that when insurers use  credit history they do not use                                                               
a  Fair Isaac  Corporation  (FICO)  score, but  use  few or  many                                                               
individual  risk characteristics  that  the insurer  finds to  be                                                               
predictive.     Mr.   Ricker  was   unsure  of   a  common   risk                                                               
characteristic that,  if improved,  would reduce  someone's rate.                                                               
Further, due  to previous legislation, credit  scoring models are                                                               
confidential and  the component where companies  support and show                                                               
their credit-based rating  is confidential.  However,  there is a                                                               
provision within AS 21.36.460 dealing  with adverse actions.  The                                                               
provision provides that when a  policyholder gets any, other than                                                               
the very  best, rate the  insurer is  required to reveal  the 3-4                                                               
most  significant  credit  attributes  that  contributed  to  the                                                               
higher rate.   He suggested that this information  may be helpful                                                               
to the insured.                                                                                                                 
4:20:52 PM                                                                                                                    
REPRESENTATIVE KITO  concluded that  insureds are  being informed                                                               
of characteristics that might have impacted their rate.                                                                         
MR.  RICKER  agreed  and  paraphrased  from  AS  21.36.460(b)  as                                                               
     ... notice  must clearly state the  significant factors                                                                    
     of  the  credit  history  on an  insurance  score  that                                                                    
     resulted in the adverse action  in a manner that allows                                                                    
     the  consumer to  identify the  basis  for the  adverse                                                                    
REPRESENTATIVE JOSEPHSON surmised there is  no way to improve the                                                               
credit  score because  the  insured doesn't  know  the merits  or                                                               
demerits  [to raise  or lower  their score];  however, under  the                                                               
adverse  action  provision,  an insured  could  figure  out  what                                                               
caused the lower score.                                                                                                         
MR. RICKER agreed  that the insured could use  the adverse action                                                               
provision,  but   they  cannot  figure   out  all  of   the  risk                                                               
characteristics that went into that,  or the degree to which they                                                               
may improve the rate.   Under current law, he reiterated insurers                                                               
are required to  notify insureds of the  significant factors that                                                               
would have increased their rate.                                                                                                
REPRESENTATIVE JOSEPHSON related that  the lowest standard in the                                                               
law  for the  passing of  any laws  is called  a "rational  basis                                                               
test."  He asked Mr. Ricker to  comment on the wisdom of, and the                                                               
basis for, the current law.                                                                                                     
MR.  RICKER  declined comment,  but  pointed  out that  testimony                                                               
suggests that,  after some initial  period, there would  be other                                                               
measurable  characteristics to  employ that  would possibly  be a                                                               
good or better predictor.                                                                                                       
4:24:11 PM                                                                                                                    
REPRESENTATIVE  LEDOUX  questioned   why  credit  card  companies                                                               
verify an  applicant's income, if  income does not  affect credit                                                               
MR. RICKER  related that an  insurance score is different  from a                                                               
FICO score, and he  was unsure as to whether a  FICO score may be                                                               
correlated with  income.  In  further response  to Representative                                                               
LeDoux, he explained  that a FICO score is the  credit score that                                                               
is  quoted  by  the  three credit  bureaus  which  are:  Equifax,                                                               
TransUnion  and  [Experian].    Each FICO  score  is  based  upon                                                               
information  the credit  bureau  keeps on  file  about a  person.                                                               
With  regard to  the  insurance scores,  he  explained that  each                                                               
insurer files,  with the division, the  credit characteristics it                                                               
uses  in  determining its  proprietary  score;  all insurers  use                                                               
different characteristics.                                                                                                      
REPRESENTATIVE  LEDOUX   asked  whether  any  of   the  insurance                                                               
companies use income as one of their characteristics.                                                                           
MR. RICKER  opined that they  do not  and may be  prohibited from                                                               
doing  so. He  continued  that he  doesn't  believe the  division                                                               
would allow the use of income without scrutiny.                                                                                 
REPRESENTATIVE  LEDOUX   acknowledged  that  each   company  uses                                                               
specific  characteristics that  are proprietary  information, and                                                               
asked whether the general characteristics are public knowledge.                                                                 
MR. RICKER  clarified that Representative  LeDoux was  asking for                                                               
the credit  history-based rate characteristics that  all insurers                                                               
use, and offered to provide that information to the committee.                                                                  
4:27:52 PM                                                                                                                    
REPRESENTATIVE  HUGHES  asked  whether,   if  the  state  statute                                                               
directed that insurance companies  couldn't use credit history at                                                               
all, insurance would then be more expensive in Alaska.                                                                          
MR. RICKER said he could not answer in any certainty.                                                                           
REPRESENTATIVE HUGHES  surmised that  having poor  credit crosses                                                               
all  income levels.    She  offered the  scenario  of a  customer                                                               
filling  out their  initial insurance  application and,  based on                                                               
poor credit,  they don't receive a  good rate.  On  renewal their                                                               
rates is  lowered because credit  isn't being considered.   Thus,                                                               
the person with  a poor credit history at renewal  will receive a                                                               
lowered  rate while  the person  with a  good credit  history who                                                               
received a  discount rate initially, experiences  a 30-35 percent                                                               
increase.  She asked whether her assumption was correct.                                                                        
MR.  RICKER   responded  that  each   insurer  scores   a  little                                                               
differently but, more or less,  the benefits cost what they cost.                                                               
There  are  some   savings  in  being  able   to  "price"  people                                                               
accurately, which is removed if the  credit is not used.  For all                                                               
of the  customers who see  an increase,  there will be  some that                                                               
see a decrease by stripping out the credit.                                                                                     
REPRESENTATIVE  HUGHES  concluded  that  currently,  at  renewal,                                                               
customers with poor  credit history are rewarded,  and those with                                                               
good  history are  not.   She asked  whether people  with a  good                                                               
[credit]  history  [receiving  an  initial  discount  bonus]  and                                                               
increased  rates  at  renewal,  are subsidizing  people  who  are                                                               
initially enrolled with a poor credit history.                                                                                  
MR. RICKER  said he  would refrain from  using the  term subsidy.                                                               
When the division tells insurers  they can't use credit, which is                                                               
a variable  risk characteristic predictive of  future loss, there                                                               
is  no   alternative  ability  to  predict   future  losses  with                                                               
precision.    Unlike  a  subsidy,  the  insurance  companies  are                                                               
charging everyone average  rates [and are unable  to use discount                                                               
rates for good credit].                                                                                                         
REPRESENTATIVE JOSEPHSON  expressed his  interest in  knowing the                                                               
basis for similar  legislation in Hawaii and  California in order                                                               
to better understand the opposing perspective.                                                                                  
REPRESENTATIVE  LEDOUX  requested   assurance  that  constituents                                                               
residing in  the district she  represents will not  be negatively                                                               
impacted by SB 127.                                                                                                             
CHAIR OLSON offered that "red  lining" has been illegal in Alaska                                                               
for a  number of years, either  by zip code, House  districts, or                                                               
other means.                                                                                                                    
REPRESENTATIVE  LEDOUX interjected  that Chair  Olson was  saying                                                               
"there is none."                                                                                                                
CHAIR  OLSON  reiterated that  red  lining  has been  illegal  in                                                               
Alaska for years, which can be confirmed.                                                                                       
4:35:59 PM                                                                                                                    
MIKE  SCHNEIDER, Attorney,  practicing in  Anchorage since  1975,                                                               
and dealing daily with the  insurance industry, observed that the                                                               
insurance industry  doesn't rally its forces  to get legislatures                                                               
to adopt  laws so  it can lose  money; however,  during testimony                                                               
today,  it sounds  as though  by adopting  this legislation  many                                                               
people will  save money, which  may not  be true.   Mr. Schneider                                                               
said he deals  with many estates of people who  have been killed,                                                               
or  people  seriously  injured  by  automobile  misbehavior,  and                                                               
Alaska has  many uninsured  citizens. He  predicted that  if this                                                               
legislation  passes, he  will  probably receive  a  break in  his                                                               
insurance rates,  but the  trouble is that  there are  many folks                                                               
who  have a  bad credit  score  and will  not be  able to  afford                                                               
insurance,  resulting  in  more  uninsured  drivers,  thus  every                                                               
constituent is at risk for a  serious injury from an uninsured or                                                               
underinsured driver.   He remarked  that he endorses the  idea of                                                               
looking  at Hawaii  and California  legislation to  determine why                                                               
those  states have  not elected  to make  changes in  response to                                                               
insurance industry demands.                                                                                                     
CHAIR  OLSON,  after  ascertaining   no  one  further  wished  to                                                               
testify, closed public testimony on SB 127.                                                                                     
REPRESENTATIVE   COLVER,  regarding   the  burden   of  paperwork                                                               
insureds face and the amount  of paperwork involved for insurance                                                               
of all  types, related a story  of the requirements to  renew his                                                               
personal insurance.   He questioned that the  industry appears to                                                               
be  in  support of  the  proposed  legislation simply  to  reduce                                                               
paperwork, and urged  argument on the merits  of the legislation,                                                               
as well as how  to make it easier for the  consumer to respond to                                                               
renewal  paperwork and  deadlines.   He described  a method  that                                                               
could simplify the renewal and waiver process.                                                                                  
4:42:44 PM                                                                                                                    
REPRESENTATIVE  LEDOUX commented  that  while  the testimony  has                                                               
been that this  is consumer-oriented legislation, she  has yet to                                                               
hear any consumers testify in support.                                                                                          
CHAIR  OLSON offered  his reluctant  support for  credit scoring,                                                               
because  "it works."   Testimony  revealed there  are two  states                                                               
that do not allow credit  scoring, and Alaska adopted legislation                                                               
in 2003-2004  allowing, "first renewal  after the initial  use of                                                               
credit   scoring."      He  asked   Ms.   Babcock   for   further                                                               
4:44:19 PM                                                                                                                    
MS.  BABCOCK  said insurance  companies  charge  overall what  is                                                               
needed to pay  claims, and hire employees, and other  costs.  The                                                               
purpose of using  credit is to try to "segment  the rate" as much                                                               
as possible, and  credit scores have been shown to  be one of the                                                               
most accurate  indicators of the  risk a person presents.   Under                                                               
current law, those characteristics of  credit cannot be used.  In                                                               
response to Chair  Olson's question about the  first renewal, she                                                               
said   that    Alaska's   law   [that   removes    credit   score                                                               
characteristics at renewal]  affects 300,000-400,000 drivers, and                                                               
prevents  giving the  best rate  for  each insured  driver.   Ms.                                                               
Babcock   questioned   why   the   state   would   prevent   [the                                                               
consideration of]  credit score characteristics at  renewal.  She                                                               
said  her  customers  are  not   wealthy  people,  and  they  are                                                               
frustrated  because of  what is  required  for them  to obtain  a                                                               
product they  want and are required  to retain.  State  law reads                                                               
that  at  the  first  renewal [credit  characteristics]  must  be                                                               
stripped out.                                                                                                                   
REPRESENTATIVE LEDOUX inquired as  to why the insurance companies                                                               
don't give  consumers who  have not had  accidents and  pay their                                                               
premiums on time the lowest rates.                                                                                              
[There  followed  a  brief  discussion on  the  value  of  credit                                                               
scoring to insurance pricing.]                                                                                                  
4:49:29 PM                                                                                                                    
REPRESENTATIVE   KITO  expressed   his   understanding  that   an                                                               
actuarial  correlation   doesn't  imply  a   direct  relationship                                                               
between  an  activity and  the  result.   Actuaries  use  related                                                               
factors  to lower  risk  and  make sure  everyone  is paying  the                                                               
appropriate premium.   He advised  that actuarial  [factors] will                                                               
not reveal a causal relationship.                                                                                               
REPRESENTATIVE JOSEPHSON asked Ms.  Babcock whether credit scores                                                               
are obtained from an institution or her home office.                                                                            
MS. BABCOCK  said her office  does not  have a credit  bureau and                                                               
vendors provide credit information.                                                                                             
REPRESENTATIVE  JOSEPHSON asked  if  the vendors  alluded to  are                                                               
located in-state,  and expressed his interest  in knowing whether                                                               
the use  of credit is a  directive from the State  Farm Insurance                                                               
national home office.                                                                                                           
MS. BABCOCK opined  that the majority of  insurance companies, as                                                               
allowed under  state statute, utilize  credit as one of  the many                                                               
characteristics  for determining  rates.    State Farm  Insurance                                                               
rates  are developed  in Bloomington,  Illinois,  and every  rate                                                               
change, discount,  and iteration of  rate must be  approved, when                                                               
filed with  the division, which can  take up to a  year.  Support                                                               
for any  type of discount  is required,  such as having  a second                                                               
policy, and  the company  is required to  show the  division that                                                               
the  qualifier  represents  a  different  risk  to  the  company.                                                               
However, the  rates are initially  developed by  corporate [State                                                               
Farm Insurance].                                                                                                                
4:52:41 PM                                                                                                                    
REPRESENTATIVE HUGHES  expressed her  understanding that  the use                                                               
of a  credit score allows for  a more appropriate and  fair price                                                               
rate.   Not using a  credit score may result  in a less  fair and                                                               
less appropriate rate, she determined.   The proposed legislation                                                               
appears  to be  an effort  to "even  things out,"  she noted  and                                                               
asked  whether it  is correct  to  say that  customers with  good                                                               
credit histories are helping to  cover the lower rates for people                                                               
who initiate a policy with a "not-so-great credit history."                                                                     
MS. BABCOCK said yes.                                                                                                           
REPRESENTATIVE  HUGHES  concluded  that  currently,  the  law  is                                                               
punishing people with a good  credit history and rewarding people                                                               
without a good history, and that is a problem.                                                                                  
[SB 127 was held over.]                                                                                                         

Document Name Date/Time Subjects
SB121 ver E.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Sponsor Statement.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Summary of Changes ver A to ver E.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Fiscal Note-LAW-CIV-01-23-16.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Supporting Documents-Email- Laura Hughes 5-28-15.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Supporting Documents-Legal Memo 10-08-15.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Supporting Documents-NCSL Child Identity Theft State Laws.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Supporting Documents-NCSL Article Identity Theft Strikes Young.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Supporting Documents-Alaska Personal Information Protection Act.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Supporting Documents-Child ID Theft Report 2012 AllClear ID Network.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB121 Supporting Documents-CyLab Child Identity Theft Report.pdf HL&C 4/8/2016 3:15:00 PM
SB 121
SB127 ver W.PDF HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Sponsor Statement.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Sectional Analysis.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Fiscal Note DCCED-DOI-02-05-16.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents- State Farm 1-21-16.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents-Assorted Emails.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents- Credit-Based Insurance Scores Consumer Brochure.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents- Div. of Insurance SEN. STA Q&A 2-16-16.PDF HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents- Fax Tim Maudsley 2-10-16.PDF HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents- Follow-Up Letter J. Kinsey SL&C 3-1-16.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents- Letter Stacey Matteson 2-11-16.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents- NAMIC 1-25-16.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents- Letter Nancy Boeshart 2-16-16.pdf HL&C 4/8/2016 3:15:00 PM
SB 127
SB127 Supporting Documents-Letter-NAMIC 04-04-16 .PDF HL&C 4/8/2016 3:15:00 PM
SB 127