Legislature(2015 - 2016)BARNES 124
04/11/2016 03:15 PM LABOR & COMMERCE
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SB 127-INSURER'S USE OF CREDIT HISTORY/SCORES 4:32:02 PM CHAIR OLSON announced that the next 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." CHAIR OLSON advised the bill was heard previously and he reopened public testimony. 4:32:48 PM TED MONINSKI stated support for SB 127, and commented that if credit information is used to rate personal insurance policies at the outset, it should continue to be a factor when the policy is renewed. This situation does not exist under current law, and his understanding is that consumers are allowed under the current statute to request a waiver and thereby authorize the insurer to use credit information at renewal. However, he discovered this is not universally true and described himself as one of those consumers who had his good credit considered at the time the insurance policy was first written, and when it came time for renewal he experienced a significant premium increase when the effect of his good credit results were stripped away as the law currently requires. In 2013, he requested in writing, a waiver as outlined in the current version of AS 21.36.460(d)(1), and his insurer denied his request explaining that given the way its rate plan was structured and approved by the Division of Insurance, the subsection (d)(1) waiver option was not available to him. The Division of Insurance confirmed the answer he received from his insurer. As a result, his premiums remained dramatically higher than would have otherwise been the case if the waiver option had been allowed. He urged the committee to take care to ascertain that its intent in passing this bill is clear. Given the deference given by the Division of Insurance to the insurer's rate plans, any ambiguity that might exist will be resolved in the rate plan process and may or may not meet the legislature's expectations. He also requested that the legislature make it clear how the revised bill will be applied, as insurers may read the bill to say that they are now free to consider credit information at the point of renewal. If the statutory change only applies to customers initially subscribing after the bill is enacted, it would be an unfortunate outcome for existing subscribers such as himself. He pointed out that the relief in the bill should apply to all renewals regardless of whether they are existing or new customers. It would be fundamentally unfair to force existing customers to start over and, thereby, give up longevity discounts and other benefits earned over time simply to avail themselves to the relief included in SB 127. 4:36:40 PM CHAIR OLSON, after ascertaining no one further wished to testify, closed public testimony. 4:37:15 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community & Economic Development, read from a prepared statement as follows: Over the weekend we were presented with, I believe there were three questions that were presented by the committee. One was: How was credit used by actuaries which drive insurance rates? The answer is: Actuaries use the credit-based information of applicants and insureds much like they use any other risk characteristics in developing rates. Using historical loss history data, the actuary performs statistical tests to identify which risk characteristics of the insured are most predictive of the observed losses, such as the risk characteristics that best explain the observed variation in losses amongst the policyholder in the data set. This gives the actuaries a set of potential risk characteristics to use as variables in the rating schemes. The actuary then performs additional testing and modeling and ultimately exercises professional judgment, which is -- which is performed in compliance, not only with the standards, but in the professional standards or with -- with compliance of the statutes, but the professional standards of an actuary to determine the final rate used. Another question is: Why should credit have anything to do with ... rating a driver's insurance rate? They have a premium record and accident history to assess risk. Credit-based ... and again, this is the answer -- credit-based risk characteristics had been repeatedly -- been repeatedly shown to be predictive of future losses even after considering insureds' other risk characteristics including payment record, accident history, and many other risk characteristics that insurers use to price their insurance products. Indeed, insurers provide most -- most provide data and documentation to clearly demonstrate to the Division of Insurance that the insurers' proposed use of credit-based risk characteristics accurately predict insureds' future loss potential. 4:39:44 PM The last question was: How does -- how do actuaries use credit and the black box? What's in the box? The black box is generally, by statute, considered confidential under AS 21.39. However, insurers are required to follow their credit-based insurance scoring models with the DOI, the Division of Insurance, and the Division of Insurance must approve the filing before the insurer is able to use the credit to calculate premiums. And, in doing so they must have the rates must be -- they must be fair, they must be adequate, they cannot be discriminatory. I know there were questions about red lining that were addressed [at the 4/8/16] hearing. So, the fact that when we talk somewhat about, on [the 4/8/16] hearing, of red lining in credit scoring, income is not a factor that is considered. And, when I testified on the Senate side that question did come up, and in credit scoring income is not a factor that is considered. And, in fact, there have been studies done where there has been -- looking at low-income and credit scoring and there has not been conclusive data to say that low- income in credit scoring, that there is a correlation as far as insurance scores. And, I don't know if that answered all the questions that were presented. I believe I got them Saturday night or Sunday morning. And, I will have those -- I apologize, I got called to a hearing earlier today when I was finishing my letter, but I will have this in writing for you for the record. 4:41:32 PM REPRESENTATIVE KITO referred to the previous testifier and asked whether someone with an existing policy benefits from the "automatic" use of credit for renewal. MS. WING-HEIER responded that they should be able to benefit from renewal. The division received an email from the previous testifier, and looked into the division's consumer complaints and the telephone calls it has received on credit scoring for the past two years. She acknowledged that the division has had [complaints] regarding the waivers, but the division could not find where it had denied a waiver. As stated, some insurance companies do not use the waiver at all, and some insurance companies opt not to use it on renewal, which is their option, because of the cost to them or the administrative burden it puts on them. However, the only thing found that the division has done, is that some insurance companies have perhaps stretched the definition of waiver when it says it must be done on each renewal; in fact, in one case an insurance company was using what the division determined was a power of attorney - Evergreen - and the division stopped it from doing that. The division is enforcing the statute that says a waiver has to be used on each renewal; however, the division is not stopping an insurance company from using a waiver to give the consumer the benefit of the credit score on renewal. REPRESENTATIVE HUGHES requested clarification that under current law the insurance company decides whether to use waivers, and Version W will remove the requirement for a waiver. She asked whether an insurance company could still choose not to use credit scores, as there is nothing in the bill that obligates insurance companies to use credit scores. MS. WING-HEIER replied correct; it is still the option of the insurance company to use a credit insurance score, or not, but it would not be required to use a waiver, at all, upon renewal. 4:44:09 PM REPRESENTATIVE JOSEPHSON asked whether Ms. Wing-Heier had testified that she saw a study showing no correlation between financial status and credit scores. MS. WING-HEIER responded: ... in mid-February I was asked by Senate State Affairs [Standing Committee], and I then submitted back to them that in 2007, the FTC, the Federal Trade Commission report found that the individuals categorized as low-income did tend to have lower insurance scores than individuals categorized as high income, though the correlation was weaker than in the case of race or ethnicity. Because of its inability to analyze individual data on income, the FTC was hesitant to reach any firm conclusions regarding the relationship between insurance scores and income. REPRESENTATIVE JOSEPHSON referred to a report from the State of Missouri, Department of Insurance - that is a dozen years old - relating to insurance-based credit scores, which concludes there is a correlation. He said he would have to give this entire issue further consideration, and asked Ms. Wing-Heier to repeat her statement. MS. WING-HEIER repeated the foregoing statement. 4:46:54 PM REPRESENTATIVE HUGHES moved to report SB 127, Version 29- LS0529\W out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, SB 127 was reported out of the House Labor and Commerce Standing Committee.