Legislature(2017 - 2018)BARNES 124
04/05/2017 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB195 | |
| HB171 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 195 | TELECONFERENCED | |
| *+ | HB 171 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 195-INSURER'S USE OF CREDIT HISTORY/SCORES
3:23:25 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."
3:24:08 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community, and Economic Development (DCCED), on behalf
of the administration introduced HB 195. She noted that using
credit history or insurance scores to rate personal lines
insurance is a complex matter, whether the insurance is for
legislators or their constituents. There is a misconception, or
people tend to think, that credit scores are discriminatory or
not a true indicator of a risk when writing an insurance policy.
The policies being talked about today are personal lines, she
explained, such as auto and homeowner's policies, motorcycles,
and recreational vehicles (RVs). For commercial lines, it is
common for insurers to ask for financial statements.
MS. WING-HEIER stated that Alaska's current statutes allow for
the use of credit scoring, or insurance scores, when applying
for new business. So, anyone going into a local broker in any
community in the state is asked to allow their credit history or
insurance score [to be used] and, based on that insurance score,
the person may receive a preferred risk. The worst that can
happen, she said, is that people without a credit history are
given a neutral score.
MS. WING-HEIER said one reason for bringing forth HB 195 is that
Alaska statute does not allow for the insurance score to be used
on renewal unless the insurance broker or insurance company asks
for, and receives from the person, a waiver upon each renewal.
This is time consuming and costly, she pointed out. Another
reason for the bill is that, like legislators, many people
travel for their work because they are fishermen, miners, or
North Slope workers. The waivers come in the mail and are
either disregarded or not returned in a timely manner. Then
someone suddenly receives his/her insurance bill or notices that
his/her homeowner's [insurance] has been paid out of escrow and
the premium has doubled because the credit score or insurance
score was not applied to the renewal. It is a cost to the
insurance brokers to ensure that everyone is sent the waivers,
and it is a cost to consumers when they realize they would have
qualified for a preferred rate. But, she continued, to get a
preferred rate, Alaska statute requires that this piece of paper
be signed every renewal, which could be annually or every six
months depending on the policy.
3:27:26 PM
MS. WING-HEIER addressed the question of whether [credit history
or insurance scores] could have a negative and answered yes.
Bad credit will be a negative implication on a person's
insurance premiums, she said. Studies have proven that there is
a correlation between credit history or insurance scores and a
person's likelihood to file an insurance claim. Perhaps it is
because those people who keep good credit and pay their bills
also take care of their homes and their autos, she continued.
Perhaps they are the ones least likely to have speeding tickets.
There is a correlation between the insurance score that is
derived and an insurance risk.
MS. WING-HEIER reiterated that the use of an insurance score is
already allowed in new business and that HB 195 would be applied
for renewals. In addition, she noted, Governor Walker has asked
that the bill contain some important provisions. First, the
governor is asking that the consumer be notified of what is
called an "adverse action". If someone's credit or insurance
score is going to result in the person having a detrimental
policy premium, the person must receive written notices from the
insurance company. Additionally, that notice must tell the
person as a consumer, a policyholder, that they are qualified to
go through an appeals process. Part of the appeals process
would be based on extenuating life circumstances, she explained,
which are outlined in Section 5 of the bill and which include
things like medical, job loss, death of a spouse, deployment
overseas, and other conditions that a prudent person would
consider an extraordinary life circumstance. The consumer would
have to appeal the insurance company within 60 days of receiving
this adverse action. The insurance company would then make the
first determination. Second, she continued, Governor Walker
didn't like that last year's Senate Bill 127 said that after
this appeals process went through, the final decision maker
would be the insurance company. So, HB 195 has been changed to
reflect that the final decision maker will be the director of
the Division of Insurance through processes and procedures that
[the division] already has established for handling other types
of appeals for consumer compliance.
MS. WING HEIER summarized by stating that HB 195 is about:
allowing for credit scoring to be used for renewal; defining an
adverse action and what an insurance company must do upon
determination that there is an adverse action on a policyholder;
and providing an appeals process that goes to the director of
the Division of Insurance for adjudication if the policyholder
doesn't like the [insurance company's] decision on an appeal
filed in regard to extenuating life circumstances.
3:31:19 PM
REPRESENTATIVE BIRCH related that he recently had a personal
impact where his insurance company was going to ramp up the cost
of his car insurance because he needed to sign something, but
because he is in Juneau and not home there is a delay in
receiving his mail. He said HB 195 is great as well as timely
and he appreciates that the bill is being brought forward.
3:32:15 PM
REPRESENTATIVE JOSEPHSON offered his understanding that when
there has been no insurance policy issued an insurance company
can use credit scoring, but not for renewals.
MS. WING-HEIER replied that during the original application the
applicant still must give permission, but yes, the insurance
company can use the applicant's credit score to determine an
insurance score. She added that when a person doesn't sign the
form it sometimes ends up becoming what is called "churning"
because the person always wants to be a new customer, an
applicant, as opposed to a renewal.
REPRESENTATIVE JOSEPHSON asked what happens if in the initial
application the applicant declines to give permission.
MS. WING-HEIER qualified she is unable to speak for insurance
companies, but that in most cases the applicant would be treated
as neutral, meaning not given a preferred rate.
3:33:26 PM
REPRESENTATIVE KNOPP noted Senate Bill 127 passed both bodies
last year before being vetoed by the governor. He further noted
that the language in Senate Bill 127 and HB 195 is identical
except for the small tweaks mentioned by Ms. Wing-Heier, which
he thinks are good. He asked whether a homeowner's insurance
policy that is wrapped into the policyholder's mortgage and
automatically paid each month is looked at annually by the
insurance company and subject to renewal every year.
MS. WING-HEIER answered that that would be subject to HB 195,
and even though it is paid through escrow the policyholder could
end up with an increased premium if the policyholder does not
sign and allow the insurance company to obtain the
policyholder's credit history to determine an insurance score.
REPRESENTATIVE KNOPP stated he isn't clear on the difference
between an insurance score and a credit score. He inquired how
they vary and how the insurance score is derived; for example,
whether the credit score is used to establish the insurance
score. He further inquired whether a new credit history is
pulled up every time the policy comes up for renewal or whether
the insurance score is used.
MS. WING-HEIER replied that a credit score is a part of the
insurance score. The overall insurance score may include things
that are already allowed, and which are not changed in the bill,
such as where the policyholder lives, the number of miles driven
to work, the kind of car, and age. Responding further, she said
HB 195 requires that an insurance company order a policyholder's
credit score at least every 24 months. The administration's
intent is that if anyone were to have a poor credit score or
insurance score that the person is allowed to improve it. The
bill also asks that the insurance company not use a credit
report or credit history that is more than 90 days old so that
the data is current.
3:36:34 PM
REPRESENTATIVE WOOL offered his understanding that if a new
homeowner applies for homeowner's insurance, the homeowner is
not required to submit a credit score and so might be deemed
neutral. He asked whether the credit score requirement is
waived when a year later the policy renewal comes up and the
policyholder signs something.
MS. WING-HEIER responded that what is being waived is the
statute and allowing the insurance company to order the
policyholder's credit score upon renewal because right now it is
not allowed upon renewal. In other words, she continued, a
person signing as a new insurer is only allowing the insurance
company to order it once, the company cannot do it twice without
getting another signature, and the third year the company would
need to get yet another signature from the policyholder.
REPRESENTATIVE WOOL stated he has a fundamental problem with a
person's insurance rate being determined by their insurance
score which is somewhat based on a credit score. He said he
understands insurance is based on actuarial [science] and the
likelihood of having to pay out for a claim, but he pointed out
that things can happen to alter a person's credit score that
don't necessarily mean the person is more likely to have a house
fire. People might lose a job or become divorced causing their
credit score to go down, but in his opinion that shouldn't
negatively affect them. He noted that when buying a house, a
person's credit score will determine if the bank will approve a
loan, but it won't determine how much the house costs. He asked
whether there are other things where the amount of charge is
dependent upon a person's credit score.
MS. WING-HEIER answered that she considers insurance a financial
product, not a service. She said she is not aware of any
service, such as a contractor, where one's credit score is
looked at for performing the service. However, she continued,
most financial products do look at a person's credit to
determine whether to extend the credit, how much credit will be
extended, and the rate.
REPRESENTATIVE WOOL stated he would call a bank loan a financial
product for which a person's credit score is evaluated and the
bank determines whether it will make the loan as well as what
the interest rate will be. But, he continued, once that is
established it remains stable and the bank doesn't do another
credit check and raise the interest rate if the credit score has
changed.
3:41:09 PM
REPRESENTATIVE JOSEPHSON offered his assumption that when it is
said that the [director] will make a determination, [the
director] doesn't have a file that is looked at but rather a
system is used and [the director] delegates it to a subordinate.
MS. WING-HEIER confirmed she would as director assign it to a
staff member to gather the information and give her a report
that it either did or didn't meet the determination or criteria
for an extenuating life circumstance. She would not be
personally obtaining the information and making a determination.
3:42:11 PM
REPRESENTATIVE WOOL surmised that insurance companies probably
like this because it must bring them more revenue with a net
result of more people paying more money. He asked why some
insurance brokers have said they don't like this credit score
being used.
MS. WING-HEIER answered she thinks it could be controversial
because some see it as a negative and don't understand the
positives of how this can positively impact consumers. Is there
a negative? Certainly, she said. If someone has poor credit it
may result in a poor insurance score. It is one factor in
determining the insurance score. The statute specifically says
that insurance companies cannot just use the credit history to
assign an insurance premium. They must use other factors or
risk characteristics, such as age, where the policyholder lives,
kind of vehicle driven, and driving history. In some cases, she
continued, it is perhaps a misunderstanding of how much has been
put into this bill to protect consumers to ensure there is an
appeal process if they feel that they've been improperly graded,
and how much it is to administer the renewals for consumers to
sign the waiver.
3:43:52 PM
CHAIR KITO stated that the use of age as a criterion for what
someone's insurance rate might be is something he went through
before age 25 and having to pay a higher premium. He was not
necessarily a higher risk, he said, but was in that age
category, which means he was an individual that met that
statistic. That is accepted because nobody can change their age
and it is accepted that there is a correlation between age and
risk, but that doesn't mean everybody who is under 25 is going
to be driving more poorly. Therefore, [the legislature] cannot
change the use of age to establish a credit or insurance score
because everybody does. He said he doesn't think correlation
means causation, but to find ways to decrease the overall cost
of insurance, companies look to try to find risk characteristics
that correlate to actual things that can be measured.
3:45:15 PM
CHAIR KITO opened public testimony on HB 195.
3:45:39 PM
KRISTIE BABCOCK, Agent, State Farm Insurance, testified in
support of HB 195. She said she employs eight individuals and
markets insurance and financial services to fellow Alaskans.
She recalled that last year a similar bill passed the
legislature by a large margin but was vetoed. She stated her
customers see the impact of the current law every day. They
hear about the impact of the current law when her agency calls
them and lets them know that the rate they received two years
prior when their policy was originally written is going to
dramatically change. Her agency lets them know the rate change
isn't because of anything they've done. It is not a simple
conversation, she advised. Her agency must explain that current
law allowed the use of their credit history in their original
rate but after two years that credit history must be stripped
out. Her agency then explains that there is an option for the
customer to give specific permission to use their credit for
that policy for the coming year and hopefully avoid the
increase. If her agency is successful in reaching them, getting
the form to them, getting the form back from them, and all in
time to avoid the increase, then there won't be a rate increase
for a year. Then the next year comes.
MS. BABCOCK said her agency has been doing this for many years
now and she has one team member who exclusively deals with the
difficulty that this current law presents for her customers.
Customers are hard to reach and are busy, and they ask her why
she can't just charge them the rate they deserve. They further
tell her that they shopped around for their insurance when they
first came to her and that's why they chose her. Customers ask
why they must get a phone call or letter every year on every
policy just to ensure that they don't get over-charged. She
noted she has customers of all demographics, of all ages, that
have tried hard to keep their credit strong and their driving
record strong. She would like to charge them the rate they
deserve and that is what HB 195 is about. Alaska is the only
state currently that makes the insurance companies take out the
credit component on the policy's renewal and it creates this
frustrating consumer experience.
MS. BABCOCK stated she doesn't see a public purpose served by
the current system and urged that the committee help fix it.
She related that some people have asked her what the impact of
HB 195 on the public would be. First, she said, it would
alleviate the dramatic swings in rates, which to customers seems
like bait and switch when their starting rate changes at
renewal. Second, HB 195 would eliminate the frustrating and
cumbersome process of getting a manual waiver signed, thereby
automating the renewal process. Lastly, she continued, HB 195
would allow customers to shop with confidence knowing there is
stability in both the initial and renewal rating factors.
3:49:46 PM
REPRESENTATIVE WOOL asked whether the majority of Ms. Babcock's
clients would pay less if credit scores were allowed.
MS. BABCOCK replied correct, the majority of Alaskans have
favorable credit characteristics that would give them a decrease
over the base rate, rather than just paying the base rate.
REPRESENTATIVE WOOL inquired whether insurance companies would
be losing money if credit checks were allowed.
MS. BABCOCK responded it might be thought about as insurance
being a zero sum. Insurance companies are going to try to
collect the correct premium to take care of the claims for the
risk pool that they represent. One of the ideas behind
insurance is to try to charge the correct rate for each person
for the risk they present. Rates are always changing and the
risk of the consumer base that a company insures is always
changing. So, she reiterated, the idea is to charge the correct
rate for each risk and the insurance company on the backend has
the duty to make sure it is charging the overall right rate so
that it is able to pay future claims.
3:51:08 PM
REPRESENTATIVE KNOPP expressed his appreciation for Ms. Babcock
talking about customer dissatisfaction. He said Ms. Babcock has
been his insurance agent for 15-20 years and he insures 5 or 6
personal vehicles with her and has both commercial and personal
policies. He shared that he is a customer who has called Ms.
Babcock's office to complain about all the forms he receives in
the mail all the time and asking why he can't just have his rate
left alone and the bill sent to him, so he can pay it. This is
an important component of HB 195, he said.
3:52:13 PM
The committee took a brief at-ease.
3:53:26 PM
ARMAND FELICIANO, Esq., Property Casualty Insurers Association
of America, testified in support of HB 195. He stated that his
association is part of an insurance coalition supporting the
bill that includes members such as Alaska USA, American
Insurance Association, and the National Association of Mutual
Insurance Companies. In the coalition's collective view, he
related, HB 195 is a reasonable middle ground that would allow
consumers to see the full benefits of credit scoring and put in
place an equitable process to solve credit disputes. The bill
would address the unnecessary market construction inherent in
existing statute, which removes credit scoring upon renewal.
Also, he continued, the bill would broaden extraordinary life
circumstances and authorize the Division of Insurance to resolve
credit disputes. He added that HB 195 is a commonsense approach
to fix Alaska's existing credit scoring rules.
3:54:41 PM
REPRESENTATIVE WOOL observed that Mr. Feliciano is calling from
California and inquired whether California allows credit scores
for insurance assessment.
MR. FELICIANO replied that California is one of two states that
doesn't allow for a credit score. About 23 other states follow
the national model, he said, and about half of the other states
follow a variation of the national model.
REPRESENTATIVE WOOL asked whether there is a lack of insurance
companies in California due to being disallowed from using
credit scores. He further asked whether it is hard to find
insurance in California.
MR. FELICIANO responded no, and said California is a very
competitive market with lots of insurance companies, so it is
not an issue.
3:55:47 PM
DANIEL LYNCH testified in opposition to HB 195 and said he
believes in privacy and logic. He stated that in his 20-plus
years on the Kenai Peninsula there are now more insurance
companies, and none have gone out of business because of credit
scores. He maintained that credit scores are irrelevant to
insurability. An insurer can go to the Division of Motor
Vehicles (DMV) and get a person's complete driving history for
$10. An insurer can go to Google Earth and plug in a person's
address to find the distance to a fire station, flood plain, or
beetle-killed forest. He noted that in 1978 he cut up his last
credit card and that his last loan from a financial institution
was in 1975. Other than three seatbelt violations he hasn't had
a ticket or accident in over 35 years. He is free money to
the insurance company, he said. What does the committee think
his credit score is? Why do his premiums go up every renewal
when the values of his vehicles are less, he is retired, and he
drives fewer miles?
MR. LYNCH stated that vehicle insurance in Alaska is like
"Obamacare" [the Affordable Care Act]. Residents are forced to
purchase from a private entity or else they can be fined,
incarcerated, and their vehicle impounded. Yet the insurance
company can cancel, increase rates, or refuse coverage willy-
nilly with no logical reason. He pointed out that Wells Fargo
opened two to three million new accounts without customer
request, which affected the people's credit scores.
MR. LYNCH noted that the previous witness is also involved in
new financial investment opportunities that have nothing to do
with insurance. He said the governor's transmittal letter for
the bill talks about the insurance code and the director and
that from last year to this year [the bill] adds many consumer
protections. But, he continued, requesting a life circumstance
exception is his business. He asked whether he would need to
hire a secretary and/or attorney to file an appeal and said this
would be cumbersome for the consumer, especially for people who
travel and might miss the paperwork and who would then have no
recourse. He questioned the final judge being the director [of
the Division of Insurance] because it is not an elected position
and because a previous director was a 20-year employee of the
insurance industry. He further pointed out that if a person
shops around for insurance and goes to six different companies
that would mean six hits against the person's credit scores and
a loss in points with each hit.
MR. LYNCH stated that if the legislature would like to pass a
law to help insurance companies, citizens, and all drivers and
pedestrians, then it could eliminate all cell phone use while
driving. He closed by asking whether committee members went to
Juneau to represent the citizens of Alaska or corporate America
and lobbyists. He urged that HB 195 and SB 98 not be passed.
4:00:51 PM
REPRESENTATIVE BIRCH asked whether Mr. Lynch has insurance.
MR. LYNCH answered correct.
REPRESENTATIVE BIRCH inquired as to how an insurer could best
size up Mr. Lynch as an insurable party.
MR. LYNCH replied that if it were for driving insurance it would
be through his driving record.
REPRESENTATIVE BIRCH offered his understanding that credit score
is a pretty good indicator for insurance companies to validate
how good a credit risk someone is or how reliable someone might
be for taking care of their possessions. He asked whether Mr.
Lynch objects to the insurance companies having access to that
information.
MR. LYNCH suggested that if he pays his bill every six months
that establishes his credit, and he usually pays cash. If one
has nothing to do with the other, he continued, the insurance
company can go to the DMV and see that he hasn't had a ticket or
an accident in 35 years and he will voluntarily tell the company
that he doesn't use a cell phone while in his vehicle. One has
nothing to do with the other to make it convenient for insurance
companies. "Who are we going to make it convenient for next
time?" he asked in conclusion. "Fred Meyer, a sporting goods
store?"
4:02:53 PM
REPRESENTATIVE KNOPP offered his appreciation that Mr. Lynch is
probably a person for whom the bill would have a neutral or
negative effect as far as using Mr. Lynch's credit score for
rating purposes. He noted that about 15 years ago legislation
was approved to allow the use of credit scores for rating
clients. However, he continued, that is not what HB 195 is
about, it is about consumer protection. Since the industry uses
credit reporting as a method to rate people, not passing HB 195
would be detrimental to consumers because if [a signed waiver]
is not received by the insurance company it will err on the side
of caution. Compared to Senate Bill 127 of last year, the
adjustments made in HB 195 make it a consumer protection bill.
He reiterated that the issue here isn't using credit scores for
rating a person as that issue was addressed 15 years ago.
MR. LYNCH responded he has been testifying on these bills for
the last four or five years because it comes back every year
with a change here or there. He recounted Director Wing-Heier
stating that HB 195 is about individual policies, not commercial
customers, and asked why they are not treated the same. He
further recounted Director Wing-Heier stating that the bill does
have potential negative consequences if a person has a bad
credit score, or, as in his case, no credit score at all. He
reiterated his question as to whether committee members are
representing the citizens of Alaska or corporate America.
4:05:46 PM
CHAIR KITO ascertained no one else wished to testify on HB 195.
4:06:02 PM
REPRESENTATIVE STUTES inquired whether HB 195 is also applicable
to medical insurance.
MS. WING-HEIER answered that it is not applicable. She said it
is personal lines, such as auto, homeowners, motorcycles, and
recreational vehicles. It is not commercial insurance, workers'
compensation, property insurance on a commercial building,
general liability, commercial auto, or any type of health or
life insurance.
REPRESENTATIVE STUTES asked whether there is a reason this isn't
affecting commercial insurance.
MS. WING-HEIER replied that financial statements are asked for
in most commercial accounts. The commercial insurance companies
will look at Dun & Bradstreet (D & B) reports. Or, if it is a
larger company, they will look at Moody's or S&P and those types
of reports, which in essence are a credit report, and then that
would be factored into an insurance score.
REPRESENTATIVE STUTES, regarding the process for appeals, noted
that the industry would be judging its own appeals, rather than
an independent body determining whether an individual had a
valid appeal. The industry, which stands to profit, would be
making the determination, she said.
MS. WING-HEIER responded that that is one reason the bill was
vetoed last year. Regarding extenuating life circumstances and
the appeal process, [under HB 195] the consumer would present
written documentation to the insurance company stating why they
think they qualify, and if the consumer doesn't receive a
favorable response, they bring it to the [Division of
Insurance]. The division director has the final say in whether
the consumer qualifies through the appeal for a preferred rate
and if the consumer should be given a waiver for an extenuating
life circumstance. So, she said, the [Division of Insurance]
becomes the third party.
4:08:45 PM
REPRESENTATIVE KNOPP offered his understanding that under HB 195
something related to medical on a person's credit report could
not be used to negatively impact the person's rating as far as
insurance.
MS. WING-HEIER answered that medical circumstances, medical
bills, for the person or family member is one of the extenuating
life circumstances that can be appealed for why the person's
credit score has taken a turn and why the person deserves a
better rate.
4:09:45 PM
REPRESENTATIVE WOOL posed a scenario in which he has large
medical bills and misses a payment to a hospital, thereby
affecting his credit score and in turn his insurance score so
that he is then assessed a higher [insurance] fee. He offered
his understanding that this would be the point at which he would
have to go through the appeal process.
MS. WING-HEIER replied that if the medical bills were to such a
point that they impacted a person's credit score, then, yes, the
person could ask for an appeal. That would be part of the
extenuating life circumstances that are defined in the bill.
4:10:36 PM
CHAIR KITO held over HB 195.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB195 Fiscal Note DCCED-DOI 3.28.17.pdf |
HL&C 4/5/2017 3:15:00 PM |
HB 195 |
| HB195 Sectional Analysis ver A 3.28.17.pdf |
HL&C 4/5/2017 3:15:00 PM |
HB 195 |
| HB195 Supporting Documents-Letter of Support 3.28.17.pdf |
HL&C 4/5/2017 3:15:00 PM |
HB 195 |
| HB195 Supporting Documents-Side by Side 3.28.17.pdf |
HL&C 4/5/2017 3:15:00 PM |
HB 195 |
| HB195 Transmittal Letter 3.28.17.pdf |
HL&C 4/5/2017 3:15:00 PM |
HB 195 |
| HB171 Fiscal Note DOC-IDO 3.31.17.pdf |
HL&C 4/5/2017 3:15:00 PM |
HB 171 |
| HB171 Sponsor Statement 3.21.17.pdf |
HL&C 4/5/2017 3:15:00 PM |
HB 171 |
| HB171 Supporting Documents-Letters of Support 4.5.17.pdf |
HL&C 4/5/2017 3:15:00 PM |
HB 171 |