Legislature(2015 - 2016)BELTZ 105 (TSBldg)

02/25/2016 01:30 PM Senate LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
<Bill Hearing Canceled>
<Bill Hearing Canceled>
+ Bills Previously Heard/Scheduled: TELECONFERENCED
-- Public Testimony --
Moved CSSB 72(L&C) Out of Committee
Moved CSSB 141(L&C) Out of Committee
         SB 127-INSURER'S USE OF CREDIT HISTORY/SCORES                                                                      
1:55:25 PM                                                                                                                    
CHAIR   COSTELLO  reconvened   the  meeting   and  announced   the                                                              
consideration of SB 127. She noted this is the first hearing.                                                                   
1:56:00 PM                                                                                                                    
SENATOR CHARLIE  HUGGINS, Alaska  State Legislature sponsor  of SB
127, said  the bill relates to  renewing insurance for  an auto or                                                              
home mortgage.  He explained  that Alaska is  the only  state that                                                              
allows  credit  scoring to  be  used  when the  initial  insurance                                                              
policy  is written,  but  not upon  renewal.  SB  127 very  simply                                                              
allows  credit  scoring to  be  used  on  renewal, which  is  more                                                              
convenient for the policyholder.                                                                                                
1:57:50 PM                                                                                                                    
LAUREN  RASMUSSEN, Staff,  Senator  Charlie  Huggins, provided  an                                                              
overview  of SB  127 on  behalf of  the sponsor,  speaking to  the                                                              
following sponsor statement.                                                                                                    
     When  Alaskans apply  for personal  auto and  homeowners                                                                   
     insurance,   there  are  several   variables  of   which                                                                   
     companies  take  into  consideration   to  assess  risk.                                                                   
     Factors  such  as  motor vehicle  record,  good  student                                                                   
     discount,  marital status, age,  and credit history  are                                                                   
     allowable by  statue; however, when an  Alaskan consumer                                                                   
     considers renewing  a policy with the same  company, the                                                                   
     business  is not allowed  to use  credit history.  Under                                                                   
     current   law,   insurers    must   strip   out   credit                                                                   
     information  after two  years  and may  only include  it                                                                   
     with request from the policy holder.                                                                                       
     By not  being able  to include  credit when it  benefits                                                                   
     consumers,  increases  in  renewal rates  can  often  be                                                                   
     significant, causing  unnecessary market  disruption and                                                                   
     consumer  complaints.  This occurrence  leads  consumers                                                                   
     to seek  new insurance  companies which  means they  may                                                                   
     not  secure the  benefits of  being  a long-term  policy                                                                   
     holder.  Senate  Bill  127  would  allow  for  insurance                                                                   
     companies  to  include credit  history  at the  time  of                                                                   
     policy renewal.                                                                                                            
     The  passage  of  Senate Bill  127  would  also  require                                                                   
     insurers to  make exceptions  to a consumer's  rate when                                                                   
     the  consumer's   credit  is  unfavorably   impacted  by                                                                   
     extraordinary  life circumstances.  This applies  to the                                                                   
     time  of   policy  inception  and  policy   renewal.  An                                                                   
     extraordinary  life circumstance  clause is a  safeguard                                                                   
     for   consumers.   Unforeseen    circumstances   include                                                                   
     incidents such as death of an immediate family member,                                                                     
      military deployment, suffering a catastrophic event,                                                                      
     and divorce.                                                                                                               
2:01:13 PM                                                                                                                    
LORI WING-HEIER,  Director, Division  of Insurance,  Department of                                                              
Commerce, Community  and Economic Development  (DCCED), Anchorage,                                                              
Alaska, described  credit scoring as  an emotional topic  and said                                                              
this   bill  is   written  to   be   neutral  and   that  is   the                                                              
administration's position on it.                                                                                                
She confirmed that  Alaska is the only state that  removes the use                                                              
of credit  scoring to  effect a discount  or lower insurance  rate                                                              
upon renewal. A  policyholder can, however, receive  a discount by                                                              
applying  for  one  through  their   insurance  agent  or  company                                                              
representative.  Because some people  may suffer  from the  use of                                                              
credit  scoring, the  bill is  written  so that  it cannot  impact                                                              
someone who  might have a  lesser credit  score than as  if credit                                                              
scoring were not  used at all. She noted that  provision was added                                                              
when the bill was redrafted last year.                                                                                          
MS.  WING-HEIER reported  that  the division  receives  complaints                                                              
from  consumers  whose  renewed   homeowner  or  auto  policy  had                                                              
increased as  much as 70  percent. Their option  is to find  a new                                                              
agent  or broker.  The consumer  got into  this situation  because                                                              
they either  didn't understand  that for  renewals credit  scoring                                                              
is  not automatically  allowed  in  the underwriting  practice  or                                                              
they  didn't agree  with  the use  of  credit  scoring and  didn't                                                              
complete the form.                                                                                                              
She clarified  that  credit scoring  is not based  on income,  but                                                              
how  the  consumer uses  credit  and  how  timely they  pay  their                                                              
bills.  She said  there  is a  statistical  correlation between  a                                                              
credit  score and  the  number of  claims a  person  is likely  to                                                              
have, and that provides an underwriting guideline.                                                                              
SENATOR GIESSEL asked  if a consumer could pay  the higher premium                                                              
one year  and sign  the form to  use credit  scoring for  the next                                                              
MS.  WING-HEIER said  the consumer  would probably  be better  off                                                              
looking for a new  insurance company to get started  back on using                                                              
a credit score in their portfolio.                                                                                              
2:06:01 PM                                                                                                                    
CHAIR COSTELLO opened public testimony.                                                                                         
2:06:10 PM                                                                                                                    
KRISTIE BABCOCK,  State Farm  Agent, Kenai,  Alaska, testified  in                                                              
support of  SB 127. She  described the  impact of the  current law                                                              
on her  customers and why  SB 127 offers  a solution.  Current law                                                              
allows  the  agent  to  use  certain   credit  components  in  the                                                              
original  rate,  but after  two  years those  characteristics  are                                                              
stripped  out.  The  result  is  a  significant  increase  in  the                                                              
premium  unless  the  agent  is able  to  get  the  policyholder's                                                              
written permission  to use their  credit. If the  customer doesn't                                                              
sign  the  form in  time  for  the annual  renewal,  existing  law                                                              
prohibits  the  use of  credit  for  subsequent renewals  on  that                                                              
policy. She shared  the experiences of several  customers that are                                                              
all paying more than they should.                                                                                               
SB 127 will alleviate  the dramatic swing in  rates; eliminate the                                                              
frustration  and cumbersome  process  of getting  a manual  waiver                                                              
signed  at  each  renewal;  and   allow  consumers  to  shop  with                                                              
confidence,  knowing  that  there   is  stability  in  the  rating                                                              
2:11:40 PM                                                                                                                    
SENATOR  STEVENS asked  how someone  is affected  if their  credit                                                              
rate fluctuates.                                                                                                                
MS. BABCOCK  explained that  the policy will  be written  based on                                                              
the consumer's  credit at the time.  If their credit  has improved                                                              
when  the  policy  is  due  for renewal  they  may  see  a  better                                                              
premium.  If their  credit doesn't  improve or  worsens, they  may                                                              
want to do more shopping.                                                                                                       
2:12:52 PM                                                                                                                    
GARY STRANNIGAN,  Safeco and  Liberty Mutual Insurance,  testified                                                              
in support  of SB  127. He shared  Safeco's experience  conforming                                                              
to  the current  statute.  He related  that  the  cost to  program                                                              
software to  comply with  the current  statute was $1.25  million.                                                              
That becomes a  barrier to entry in the broader  marketplace given                                                              
the size of the market.                                                                                                         
2:14:32 PM                                                                                                                    
MARK CHOATE,  representing himself,  Juneau, Alaska,  testified on                                                              
SB  127. He  questioned  why credit  scoring  should  be used  for                                                              
something  that is  mandatory. He  further  questioned why,  after                                                              
two  years of  proven  use, the  policyholder's  credit score  has                                                              
anything to  do with the risk  the insurance company is  taking in                                                              
terms of their driving or maintaining their home.                                                                               
He  claimed that  the  insurance companies  are  creating a  false                                                              
paradigm to  create the  situation. They  factor in credit  scores                                                              
on buying  the policies and  then pull  that out of  the algorithm                                                              
for  renewal, but  they don't  consider anything  else. What  they                                                              
should do is reweight other factors, he said.                                                                                   
He  suggested  the  Division  of  Insurance  should  look  at  the                                                              
algorithm  because there's  no reason  that two  years of  driving                                                              
history shouldn't be the basis for calculating the premium.                                                                     
2:18:24 PM                                                                                                                    
DANIEL LYNCH,  representing himself,  Kenai, Alaska,  testified in                                                              
support  of SB  127.  He is  completely  opposed  to using  credit                                                              
scores to  determine insurance  rates at any  time. He  shared his                                                              
personal story  of having no credit  score. Through choice  he has                                                              
had no credit  cards or loans for  40 years. He maintains  his old                                                              
vehicle  and is  a good driver,  yet his  auto rates  go up  every                                                              
renewal.  He  urged  the  committee  to go  old  school  and  base                                                              
insurance rates  on driving history,  vehicle value,  and distance                                                              
driven, not a credit rating.                                                                                                    
2:21:25 PM                                                                                                                    
TIM   MAUDSLEY,   President,   Alaska   USA   Insurance   Brokers,                                                              
Anchorage, Alaska,  testified in  support of  SB 127. He  said the                                                              
change embodied in  SB 127 will provide consumers  with a fair and                                                              
accurate rate  on insurance renewals  and eliminate  the confusion                                                              
due to  policy cancellations and  the burden of  changing carriers                                                              
to  maintain insurance  and rate  discounts. He  opined that  this                                                              
legislation  will   likely  open  the  door  for   more  insurance                                                              
carriers  to  come  to  Alaska.  This  means  lower  premiums  for                                                              
2:23:20 PM                                                                                                                    
ARMAND  FELICIANO,  Property  Casualty   Insurers  Association  of                                                              
America,  California,  testified   in  support  of  SB  127.  This                                                              
legislation will  allow consumers to  receive the full  benefit of                                                              
credit  scoring.  He suggested  the  committee  look at  what  has                                                              
happened  in Arkansas since  it started  allowing credit  scoring.                                                              
Over  40  percent  of  policyholders   have  seen  their  premiums                                                              
decrease.  The  number  of  policyholders  that  have  seen  their                                                              
premiums  increase has  held steady  at about  14 percent.  A good                                                              
number of policyholders have been unaffected since 2011.                                                                        
2:24:54 PM                                                                                                                    
CINDA  SMITH,  Geico,  Maryland,  echoed  previous  testimony  and                                                              
stated support for SB 127.                                                                                                      
2:25:44 PM                                                                                                                    
JEFFERY  KINSEY,  State  Farm  Insurance,  Bloomington,  Illinois,                                                              
testified in  support of SB 127.  He said State Farm insures  1 in                                                              
4  autos  in  Alaska  and  1  in 3  homes.  He  leads  a  team  of                                                              
predictive  modelers  that  develop insurance  risk  scores  using                                                              
credit-related  information.  Their  analysis  and  other  studies                                                              
show that certain  credit-related variables are  highly predictive                                                              
of  future  insurance  losses.  Using  this  information  benefits                                                              
consumers but  neither adds  to nor  reduces an insurer's  profit.                                                              
Because it  is such  a proven effective  tool, credit  information                                                              
is allowed in 47 states including Alaska.                                                                                       
He   clarified  that   the  credit   information  that   insurance                                                              
companies  use  is not  a  FICO  score.  Those were  developed  to                                                              
estimate  a person's  ability  to repay  debt.  An insurance  risk                                                              
score uses  credit related  variables that have  been shown  to be                                                              
predictive of future  insurance losses. He further  clarified that                                                              
current Alaska  law requires all  insurance companies  to consider                                                              
the absence of credit history as rate neutral.                                                                                  
MR. KINSEY  said many  low-income policyholders  benefit  from the                                                              
use  of  credit-related   information  initially,   but  based  on                                                              
current  Alaska law  they are  not  allowed to  continue to  enjoy                                                              
those benefits  after two years  with a company.  Approximately 60                                                              
percent of State  Farm personal auto and homeowners  policyholders                                                              
entering  their  third  year  of coverage  would  receive  a  rate                                                              
increase if their credit information is stripped out at renewal.                                                                
State Farm  supports SB 127  because it  will lead to  a healthier                                                              
insurance market  and increase the affordability  of insurance for                                                              
Alaskans, he said.                                                                                                              
2:29:12 PM                                                                                                                    
CHAIR COSTELLO asked if he heard Mr. Lynch's testimony.                                                                         
MR. KINSEY said yes.                                                                                                            
CHAIR COSTELLO asked  if current law allows the  absence of credit                                                              
history to be considered rate neutral.                                                                                          
MR. KINSEY  said that's  correct; existing  law requires  insurers                                                              
to treat the lack of credit history as rate neutral.                                                                            
CHAIR COSTELLO asked  for clarification that a  person's credit is                                                              
considered when  the initial policy  is written, but  upon renewal                                                              
it's absent from the analysis.                                                                                                  
MR.   KINSEY  confirmed   that  without   the  waiver,   insurance                                                              
companies  are required  to strip  out any  credit variables  that                                                              
were used  as new business. He  recalled that requirement  was the                                                              
result of a court case.                                                                                                         
SENATOR  STEVENS  asked for  help  understanding  risk and  credit                                                              
score in the context of insurance.                                                                                              
MR.  KINSEY explained  that a  credit score  is oftentimes  geared                                                              
toward banking and  whether or not an individual  will repay debt,                                                              
whereas an  insurance risk  score is  geared toward insurance  and                                                              
the likelihood an individual will file a future claim.                                                                          
CHAIR COSTELLO  asked him to  put that into  an email and  send it                                                              
to her office.                                                                                                                  
MR. KINSEY agreed.                                                                                                              
SENATOR STEVENS  asked if  he's saying that  a poor  credit rating                                                              
is predictive of a future insurance claim.                                                                                      
MR.  KINSEY  said the  credit  score  itself isn't  predictive  of                                                              
future losses,  but individual elements  from a credit  report are                                                              
predictive of future losses.                                                                                                    
SENATOR  STEVENS  asked what  elements  are predictive  of  future                                                              
MR.  KINSEY said  they vary  by  company but  generally fall  into                                                              
four broad categories:  performance on credit  obligations, credit                                                              
seeking behavior,  consumer's  use of credit  such as  outstanding                                                              
balance to available credit, and length of the credit history.                                                                  
2:34:47 PM                                                                                                                    
At ease                                                                                                                         
2:35:22 PM                                                                                                                    
CHAIR COSTELLO  reconvened  the meeting and  asked Ms.  Wing-Heier                                                              
if she had any comment on the testimony today.                                                                                  
MS. WING-HEIER  said the  comments have  all been valid  including                                                              
those from Mr. Lynch.                                                                                                           
SENATOR MEYER  asked if it matters  to the division that  the bill                                                              
has  no  effective  date.  He would  prefer  it  became  effective                                                              
MS. WING-HEIER said it makes no difference to the division.                                                                     
SENATOR MEYER  asked about  the process  for an insurance  company                                                              
to consider a consumer's extraordinary life circumstances.                                                                      
MS. WING-HEIER said  the onus would be on the  consumer to explain                                                              
to the insurer why their credit score was impacted.                                                                             
2:38:25 PM                                                                                                                    
SENATOR  MEYER  asked if  this  covers  more  than auto  and  home                                                              
insurance policies. He mentioned his wife's lost diamond ring.                                                                  
MS.  WING-HEIER  replied  this  is for  all  personal  lines,  not                                                              
commercial.  It   would  be  auto,  home,  and   could  extend  to                                                              
watercraft,   equipment,   artwork,   the  loss   described,   and                                                              
SENATOR  MEYER  asked  about discrimination.  He  noted  that  his                                                              
insurance increased when his daughter started driving.                                                                          
MS. WING-HEIER said  insurers are not allowed to  discriminate and                                                              
their  research has  found  it has  not been  a  factor in  credit                                                              
2:40:36 PM                                                                                                                    
CHAIR  COSTELLO  closed  public  testimony  and  held  SB  127  in                                                              

Document Name Date/Time Subjects
SB 127.PDF SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Hearing Request L&C.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Sponsor Statement.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Sectional Analysis.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Credit-Based Insurance Scores Consumer Brochure.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents - NAMIC 1-25-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents - State Farm.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents- Email Brenda Pearce 2-4-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents- Email Cindi Heal 2-10-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents- Email Jeff Case 2-10-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents- Email Kay Rodriguez 2-10-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents- Email Kelly Snodgrass 2-10-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents- Email Stan Tebow 2-8-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents- Fax Tim Maudsley 2-10-16.PDF SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents- Letter Nancy Boeshart 2-16-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 Supporting Documents- Letter Stacey Matteson 2-11-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 127 - Fiscal Note DCCED.pdf SL&C 2/25/2016 1:30:00 PM
SB 127
SB 149.PDF SL&C 2/25/2016 1:30:00 PM
SB 149
SB 149 Transmittal Letter.pdf SL&C 2/25/2016 1:30:00 PM
SB 149
SB 149 Sectional Analysis.pdf SL&C 2/25/2016 1:30:00 PM
SB 149
SB 149 Hearing Request.pdf SL&C 2/25/2016 1:30:00 PM
SB 149
SB 149 Fiscal Note-DCCED-AIDEA-11-20-16.PDF SL&C 2/25/2016 1:30:00 PM
SB 149
SB 149 02.25.16 Presentation.pdf SL&C 2/25/2016 1:30:00 PM
SB 149
SB 141 - AAAS E-Cigs More Dangerous Than Tobacco.pdf SL&C 2/25/2016 1:30:00 PM
SB 141
Changes from CS SB 72(HSS) to CS vsn L 2-23-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 72
SB 141 - Background Harvard Gazette E-Cigs Flavorings Harmful.pdf SL&C 2/25/2016 1:30:00 PM
SB 141
SB 141 - Version P Bill Summary.pdf SL&C 2/25/2016 1:30:00 PM
SB 141
SB 141 E-Cigs Slideshow.PDF SL&C 2/25/2016 1:30:00 PM
SB 141
SB 141 Version P Sectional.pdf SL&C 2/25/2016 1:30:00 PM
SB 141
SB 141 Version P.pdf SL&C 2/25/2016 1:30:00 PM
SB 141
SB72 Designated Caregiver vsn L 2-22-16.pdf SL&C 2/25/2016 1:30:00 PM
SB 72