Legislature(2017 - 2018)BARNES 124
04/17/2017 03:15 PM LABOR & COMMERCE
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HB 195-INSURER'S USE OF CREDIT HISTORY/SCORES 3:20:30 PM CHAIR KITO announced that the first order of business would be HOUSE BILL NO. 195, "An Act relating to insurer actions based on credit history and insurance scores at insurance policy renewal; and providing for insurer consideration of consumer requests for exceptions of credit history or insurance scores." CHAIR KITO noted public testimony was still open on HB 195. After ascertaining that no one wished to testify, he closed public testimony. 3:21:31 PM REPRESENTATIVE WOOL stated he wanted to offer an amendment but didn't have time and that he personally opposes using credit scores to assess insurance fees and rates. He related that studies by the Federal Reserve and others show that credit scores disproportionately affect people of color and minorities who tend to have poor credit and so get assessed a higher rate, which is his problem with the bill. REPRESENTATIVE STUTES said she doesn't have affection for the bill either way. She asked Representative Wool what type of amendment he was considering. REPRESENTATIVE WOOL responded that when someone is offered a policy the insurance company may use the person's credit score and then after one year the company needs authorization to continue to use a credit score. He said his understanding that "may" use credit score is often that the company does use credit score and the applicant doesn't have a choice. Therefore, he would like a possibility to opt out. He surmised insurance companies wouldn't want that because it is to their advantage to have this tool at their disposal. Nowadays with people undergoing more economic hardship, studies often show that people put medical expenses on their credit card and these are people that have insurance but are incurring medical bills while costs are going up all the time. As people incur more balances on more cards, they have a lower credit rating. He said he wanted to discuss whether the option to opt out entirely would be possible. 3:24:08 PM REPRESENTATIVE BIRCH spoke in support of HB 195. He related a personal experience when his insurance went up because under current state law access to credit scores is not permitted for purposes of policy renewal for automobile insurance. As a practical matter, he said, credit score is used routinely. For example, he spent nine years on the board of Chugach Electric Association where it was routinely used instead of requiring a deposit for determining whether someone was a good risk for advancing a month's worth of utilities. It is a reasonable approach, he opined. Credit score is a mechanism to mitigate risk in the commercial world. The use of credit score in this proposal is balanced and reasonable and is widely accepted from an industry standpoint, and therefore he is a yes vote. 3:25:28 PM REPRESENTATIVE STUTES related that she called the main insurance carrier in Kodiak to ask about [HB 195], and [the agent] responded that of course the companies he represented wanted it, but that he didn't have a preference. She further related that when she asked [the agent] how he would vote on it, he hesitated for a while and then said he didn't really know. She said she found this interesting because she had thought that being from the industry [the agent] would have been in favor of the bill. Based on that experience, she said, I'm not crazy about it either way. She stated she is at the will of the chair. 3:26:19 PM REPRESENTATIVE SULLIVAN-LEONARD, regarding people's consideration of updating their information on a yearly basis, remarked that an annual check on credit score for insurance renewal affects a person's score, and she said she thinks that's where people have heartburn. She said if there were a process that could show that having the forms pre-signed ready to go on a yearly basis was a good thing and may not affect someone personally, then she may support it, but she has a lot of questions on that. REPRESENTATIVE STUTES related that she asked her insurance carrier that very question on checking the credit score and was told that it is called a soft credit check, which has no effect on someone's credit score. 3:28:12 PM CHAIR KITO asked whether the use of credit scores by insurance companies to determine a person's insurance rate would [adversely] effect a person's credit score. LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community, and Economic Development, State of Alaska, replied that it should not [affect a person's credit score]. MS. WING-HEIER further commented that after the committee last heard the bill, she researched the matter brought up by Representative Wool about the medical industry or medical codes. She found that Alaska Statute (AS) 21.36.960 would prohibit the use of medical for credit scoring for this bill for insurance purposes. CHAIR KITO inquired as to how an insurance company would present using credit score for a rate calculation. MS. WING-HEIER replied that according to insurance underwriting guidelines the insurance company would ask [an applicant/client] questions regarding type of auto, driving history, driving record, place of residence, and distance driven to work. The insurance company would also ask and provide in writing that it is going to order up credit history. A person has the right to say no and does not have to allow the use of his or her credit score, and can opt out in the very beginning, although this may result in not being given a preferred rate. If there is an adverse reaction that the company would take because it determines a person's credit score is not positive or it was going to impact the person's insurance premium, then the company is required to advise the person, in writing, what that decision was based on, and that is part of what this bill is doing. 3:30:21 PM CHAIR KITO offered his understanding that HB 195 would provide that a person could opt out at the beginning of what is already the law. This bill would say that if credit score is used for a re-up and that changes in a dispositive way the company is required to notify the person that that took place. MS. WING-HEIER answered that HB 195 clarifies for both new business and renewal business that [the insurance company] has to tell a person in writing why he or she is materially impacted by the ordering of his or her credit score, what it was, and that the person has the right to appeal it to the Division of Insurance through the extenuating life circumstances provision. 3:31:02 PM REPRESENTATIVE WOOL offered his understanding that a person who opts out of the credit score option would not get a preferred rate and would be charged more. He asked whether a person would be able to also look at what his or her rate would be if the company did do a credit score analysis and then compare the two, or would it just be a matter of rolling the dice. MS. WING-HEIER offered her belief that it would be a roll of the dice a person either allows or disallows the use of his or her credit score. She added that once the credit score was given, she doesn't know how it would be taken back. REPRESENTATIVE WOOL posed a scenario where on the first year a person chooses not to allow the insurance company to use his or her credit score. He inquired whether upon year one rolling around, and if HB 195 is enacted, the insurance company could use the person's credit score without his or her approval. MS. WING-HEIER replied no, at the time of applying for insurance a person must give the insurance company permission to use his or her credit score forever. Permission either is given or not given. Upon renewal a person could go back to the broker and give permission to begin using his or her credit score beginning now. But, if permission is not given, the insurance company cannot use a person's credit score at any time. REPRESENTATIVE WOOL offered his understanding that when someone initiates an insurance policy, they either give permission for use of their credit score or don't and won't know whether their credit score would have given them a lower rate. He asked what the formula is for coming up with the credit score or insurance number and whether the division is informed of what the formula is. MS. WING-HEIER responded that in some cases the division does see where the credit score is, but in most cases, it is part of the insurance company's confidential underwriting as to where it is. The division does see where it is put into the formula for underwriting, the division does see that they use it, and the division does see in some companies the percentage of what it qualifies for, such as whether it is a 10, 20, or 30 percent determination factor depending on the individual company. For example, she continued, Geico doesn't use it at all at this time in Alaska. The division knows that State Farm, Liberty, and Safeco rely heavily on it. So, some companies use it, and some don't, and to say exactly how much they rely on it as opposed to other factors, she would have to pull the individual filings and talk to all the companies that are in Alaska. 3:34:33 PM CHAIR KITO stated that there are differences between causation and correlation. He said one of the things used by actuaries is a correlation and correlations can be identified without having causation. Actuaries run numbers on statistics every day to find out what correlates to higher risk or lower risk or higher expense or lower expense and companies have found that credit score is not a causative factor, but a correlative factor, for insurance risk. It might be counterintuitive that using a credit score can lower a person's rates, he continued, but for the vast majority of those who are insured that is the case. He recalled from earlier testimony that the assignment of a poor credit score does not belong to any one class of person - that people with higher incomes can have just as much of a poor credit history as people with lower incomes. That is one of those other things, he cautioned, where care must be taken in utilizing stereotypical beliefs on some of these actions. CHAIR KITO opined that in this bill, the department and the governor have a vested interest in trying to provide for an insurance system that works best for the vast majority of Alaskans. California has not used credit scores, he said, but he doesn't know what the impact is on that state's insurance rates. California creates its own weather, he continued, and given its [large] population costs can be amortized over a lot broader expanse than Alaska would be able to do over its population of 700,000. So, while it might not make a difference [in California], he continued, he believes that it can make a difference in Alaska and is therefore good policy. CHAIR KITO stated he would like to move HB 195 forward, but allowed it sounds like there are going to be issues with trying to get the bill further along in the system. He said he thinks the committee has done what it can with the bill and he doesn't see other things that can be done to alleviate the concerns that have been expressed so far. He offered his belief that the committee is at a policy point where a member either agrees or disagrees with this policy and it is time to move the bill to the next level of scrutiny. 3:37:46 PM REPRESENTATIVE BIRCH stated that the bill is good legislation and went through both chambers last year. The governor had some issues with it, he recounted, but after some tweaks the governor brought it back before the legislature. The bill is a good effort to square things up and recognize reality, he continued. While a person doesn't have to give permission to use his or her credit score, credit history is relevant when it comes to insurance or consumer loans. He said he supports the bill. 3:38:29 PM REPRESENTATIVE WOOL agreed that California makes its own weather in that it is the fifth largest economy in the world. But, he noted, the states of Hawaii, Massachusetts, and Maryland also don't allow the use of credit scores. As far as the vast majority of people getting a benefit from a credit score, he said he thinks that in the act of business if a company instituted a policy that caused it to receive less money he would see the company as not wanting to pursue it and they all would go the way California is going if it saved the majority of people money. He cited a report from the Federal Reserve Board to the U.S. Congress which states that according to self- reported data on race or ethnicity, the mean TransRisk Score for Asians is 54.8, non-Hispanic whites 54, Hispanics 38.2, and blacks 25.6. While he is not saying it is causation, he continued, there may be a correlation to credit score and race and ethnicity and he doesn't think a bad credit score necessarily makes someone a bad driver. He said he therefore categorically opposes this type of legislation. 3:40:22 PM REPRESENTATIVE JOSEPHSON moved to report HB 195 out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE WOOL objected. 3:40:38 PM A roll call vote was taken. Representatives Josephson, Birch, Stutes, and Kito voted in favor of it. Representatives Wool and Sullivan-Leonard voted against it. Therefore, HB 195 was reported out of the House Labor and Commerce Standing Committee by a vote of 4-2.