Legislature(2001 - 2002)
04/19/2002 03:20 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 19, 2002
3:20 p.m.
MEMBERS PRESENT
Representative Lisa Murkowski, Chair
Representative Andrew Halcro, Vice Chair
Representative Kevin Meyer
Representative Pete Kott
Representative Norman Rokeberg
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 220(L&C)
"An Act relating to the scope of practice authorized under a
license to practice hairdressing."
- MOVED CSSB 220(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 395
"An Act prohibiting discrimination by credit rating or credit
scoring in insurance rates; and providing for an effective
date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: SB 220
SHORT TITLE:SCOPE OF PRACTICE OF HAIRDRESSING
SPONSOR(S): SENATOR(S) GREEN
Jrn-Date Jrn-Page Action
05/02/01 1435 (S) READ THE FIRST TIME -
REFERRALS
05/02/01 1435 (S) L&C
03/14/02 (S) L&C AT 1:30 PM BELTZ 211
03/14/02 (S) Heard & Held
03/14/02 (S) MINUTE(L&C)
03/26/02 (S) L&C AT 1:30 PM BELTZ 211
03/26/02 (S) Moved CSSB 220(L&C) Out of
Committee
03/26/02 (S) MINUTE(L&C)
03/27/02 2534 (S) L&C RPT CS 4DP SAME TITLE
03/27/02 2534 (S) DP: STEVENS, AUSTERMAN,
DAVIS,
03/27/02 2534 (S) TORGERSON
03/27/02 2534 (S) FN1: ZERO(CED)
04/03/02 2609 (S) RULES TO CALENDAR 4/3/02
04/03/02 2610 (S) READ THE SECOND TIME
04/03/02 2611 (S) L&C CS ADOPTED UNAN CONSENT
04/03/02 2611 (S) ADVANCED TO THIRD READING
UNAN CONSENT
04/03/02 2611 (S) READ THE THIRD TIME CSSB
220(L&C)
04/03/02 2611 (S) PASSED Y19 N- E1
04/03/02 2619 (S) TRANSMITTED TO (H)
04/03/02 2619 (S) VERSION: CSSB 220(L&C)
04/03/02 (S) RLS AT 10:30 AM FAHRENKAMP
203
04/03/02 (S) MINUTE(RLS)
04/04/02 2793 (H) READ THE FIRST TIME -
REFERRALS
04/04/02 2793 (H) L&C
04/19/02 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 395
SHORT TITLE:INSURANCE DISCRIMINATION BY CREDIT RATING
SPONSOR(S): REPRESENTATIVE(S)CRAWFORD
Jrn-Date Jrn-Page Action
02/08/02 2183 (H) READ THE FIRST TIME -
REFERRALS
02/08/02 2183 (H) L&C
02/08/02 2183 (H) REFERRED TO LABOR & COMMERCE
03/06/02 (H) L&C AT 3:15 PM CAPITOL 17
03/06/02 (H) Heard & Held
03/06/02 (H) MINUTE(L&C)
04/19/02 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
GERALDINE McINTOSH, Staff
to Senator Lyda Green
Alaska State Legislature
Capitol Building, Room 125
Juneau, Alaska 99801
POSITION STATEMENT: Testified on behalf of the sponsor of SB
220, Senator Lyda Green.
CATHERINE REARDON, Director
Division of Occupational Licensing
Department of Community & Economic Development
PO Box 110806
Juneau, Alaska 99811-0806
POSITION STATEMENT:
VANNA PETERSON, Owner
The Hair Loft
236 Lincoln Street, Number 105
Sitka, Alaska 99835
POSITION STATEMENT: Testified in support of [CSSB 220(L&C)].
DEBRA RIGDON
3201 Halibut Point Road, Number 5
Sitka, Alaska 99835
POSITION STATEMENT: Testified in support of [CSSB 220(L&C)].
SANDY GUGGENBICKLER
815 Lake Street
Sitka, Alaska 99835
POSITION STATEMENT: Testified in support of [CSSB 220(L&C)].
STASHEA STRELAW
P.O. Box 6013
Sitka, Alaska 99835
POSITION STATEMENT: Testified in support of [CSSB 220(L&C)].
CECILIA RIDGE
P.O. Box 6228
Sitka, Alaska 99835
POSITION STATEMENT: Testified in support of [CSSB 220(L&C)].
DAVE D'AMATO, Staff
to Representative Harry Crawford
Alaska State Legislature
Capitol Building, Room 426
Juneau, Alaska 99801
POSITION STATEMENT: Answered questions related to Version L of
HB 395.
DAVID McCARTER
857 Faultline Drive
North Pole, Alaska 99705
POSITION STATEMENT: Related his preference for the Senate Bill
that specified that no credit profiling would be done.
DAVID VALDEZ
658 Fairbanks Street
Fairbanks, Alaska 99709
POSITION STATEMENT: Testified that [Version L] is better than
[the gutted Senate Bill].
TARA DRENNON
PO Box 81294
Fairbanks, Alaska 99708
POSITION STATEMENT: Expressed concern with regard to the lack
of provisions in HB 395 for the victims of identity theft.
LIZ OFELT
PO Box 750148
Fairbanks, Alaska 99708
POSITION STATEMENT: Provided comments from her perspective as a
insurance agent.
STEVE CONN, Executive Director
Alaska Public Interest Research Group
PO Box 101093
Anchorage, Alaska 99503
POSITION STATEMENT: Characterized CSHB 395 [Version L] as a
compromise.
MARK NEIHAUS
Progressive Insurance
(No address provided)
POSITION STATEMENT: Discussed how Progressive Insurance uses
credit scoring, and suggested changes to CSHB 395 [Version L].
MIKE HAROLD, Northwest Regional Manager
National Association of Independent Insurers
(No address provided)
POSITION STATEMENT: Related his belief that CSHB 395, Version
L, has a number of problems.
ELIZABETH MOCERI, Regional Counsel
Allstate Insurance Company
(No address provided)
POSITION STATEMENT: Expressed concerns with CSHB 395, Version
L.
DEE HUBBARD
(No address provided)
POSITION STATEMENT: Testified in support of CSHB 395, Version
L.
ACTION NARRATIVE
TAPE 02-60, SIDE A
Number 0001
CHAIR LISA MURKOWSKI called the House Labor and Commerce
Standing Committee meeting to order at 3:20 p.m.
Representatives Murkowski, Halcro, Meyer, and Crawford were
present at the call to order. Representatives Kott, Rokeberg,
and Hayes arrived as the meeting was in progress.
SB 220-SCOPE OF PRACTICE OF HAIRDRESSING
CHAIR MURKOWSKI announced that the first order of business would
be CS FOR SENATE BILL NO. 220(L&C) "An Act relating to the scope
of practice authorized under a license to practice hairdressing"
Number 0075
GERALDINE McINTOSH, Staff to Senator Lyda Green, Alaska State
Legislature, testified on behalf of the sponsor of SB 220,
Senator Lyda Green. Ms. McIntosh read the sponsor statement as
follows:
Committee Substitute for Senate Bill 220(L&C) amends
Alaska Statute 08.13[.170(f)], authorizing the Board
of Barbers and Hairdressers to issue a hairdressing
license that includes the temporary removal of
superfluous hair on the face and neck and the
application of basic make-up. These services are
typically assumed to be available from a hairdresser.
The removal of unwanted hair by means of hair waxing
and the application of basic make-up are services that
hairdressers should be allowed to practice.
Hairdressers are trained and tested in these areas and
have always performed these services. Both waxing and
basic make-up are a part of the curriculum required to
graduate; by statute, current training required for a
hairdressing license is 1,650 hours. Included in the
1,650 hours are 15 practical operations of eyebrow
arching and hair removal by means of waxing, [tweezing
and the use of depilatories] and 15 basic make-up
applications, including [skin analysis, complete and
corrective make-up and] the application of false
eyelashes (12 ACC 09.160). Although the curriculum
requires that they perform these operations during the
instructional phase, once they are licensed, Alaska
state law prohibits them from performing these
services for their clients.
I respectfully request your support of CSSB 220(L&C),
allowing trained professionals to continue a practice
that they are fully qualified to do.
CHAIR MURKOWSKI surmised that the intention was to include the
practice of the removal of excessive hair and waxing [under the
hairdresser's license] since it's included in the training. She
inquired as to why the removal of excess hair and waxing wasn't
included [under the hairdresser's license].
MS. McINTOSH related her belief that the board wanted
hairdressers to be prepared if they moved out of state and
wanted to become licensed. She said that she was a little
unsure as to why it wasn't included in the license for
hairdressing. In further response to Chair Murkowski, Ms.
McIntosh informed the committee that this issue came to light
after Senator Green's office received a petition with 500
signatures from hairdressers and others. It was brought to the
hairdressers' attention that they weren't licensed to perform
these services and thus the hairdressers had to discontinue
providing these services. She clarified that hairdressers that
aren't also a licensed aesthetician can't do waxing.
REPRESENTATIVE CRAWFORD asked if this legislation would harm the
licensed aesthetician's industry.
MS. McINTOSH deferred to the Division of Occupational
Licensing's representative.
Number 0377
CATHERINE REARDON, Director, Division of Occupational Licensing,
Department of Community & Economic Development (DCED), answered
that she didn't believe this legislation would hurt the
aestheticians. She didn't recall any aestheticians testifying
against this minimal sharing of [services], which she suspected
was because most aestheticians seem to center their businesses
around facials and other such skin care services. Furthermore,
there probably hasn't been opposition to this because
hairdressers have always believed that they could perform waxing
services. Ms. Reardon indicated that this came to light when
the division sent out a general advisory to a profession in
which the profession is reminded of the types of things that the
profession can't do, such as that hairdressers can't perform
waxing and hair removal. She didn't envision this as a change
in the distribution of work but rather a legalization of current
practices. She noted that the Board of Barbers and Hairdressers
supports this legislation.
CHAIR MURKOWSKI turned to Section 1 of the legislation and
related her understanding that a licensed barber wouldn't be
able to perform any waxing.
MS. REARDON agreed. In further response to Chair Murkowski, Ms.
Reardon explained that "limited esthetics" refers to "(A)
temporary removal of superfluous hair on the face or neck,
including eyebrow arching by use of wax". She said that the
aforementioned language would probably include tweezing. She
specified that the method of hair removal [allowed would be
based] on whether it was temporary removal. She related her
belief that electrolysis is marketed as permanent hair removal.
In regard to the new developments in skin care, Ms. Reardon
suggested that it might be worth revisiting the aesthetician
statutes.
Number 0818
VANNA PETERSON, Owner, The Hair Loft, testified via
teleconference. Ms. Peterson informed the committee that she
holds a cosmetology license from the State of Kansas and
hairdressing license from the State of Alaska. She pointed out
that for both of those licenses, she was required to study
facial procedures, including waxing, skin care, and anatomy.
Ms. Peterson related that she should have the right to perform
what she was trained to perform during her education. Ms.
Peterson noted her support of [CSSB 220(L&C)].
Number 0944
DEBRA RIGDON testified via teleconference. She noted that she
has a [hairdressing] license from another state and is currently
working on her license in Alaska. She said she didn't
appreciate having the ability to wax being taken away from
hairdressers and now having to work to get it back. She
expressed the need to pass [CSSB 220(L&C)].
Number 1004
SANDY GUGGENBICKLER testified via teleconference and informed
the committee that she holds a hairdressing license from Alaska
and another state. Ms. Guggenbickler announced her support of
SB 220.
STASHEA STRELAW testified via teleconference in support of [CSSB
220(L&C)].
CECILIA RIDGE testified via teleconference. She echoed earlier
testimony with regard to her education including waxing and
make-up applications. Ms. Ridge stated her support of [CSSB
220(L&C)]. In response to Chair Murkowski, Ms. Ridge explained
that the waxing had to be performed on other students in the
class; the waxing training was extensive, she said.
Number 1160
REPRESENTATIVE HALCRO moved to report CSSB 220(L&C) out of
committee with individual recommendations and the accompanying
fiscal note. There being no objection, CSSB 220(L&C) was
reported out of the House Labor and Commerce Standing Committee.
HB 395-INSURANCE DISCRIMINATION BY CREDIT RATING
CHAIR MURKOWSKI announced that the next item before the
committee would be HOUSE BILL NO. 395, "An Act prohibiting
discrimination by credit rating or credit scoring in insurance
rates; and providing for an effective date."
Number 1208
REPRESENTATIVE HALCRO moved to adopt CSHB 395, Version 22-
LS1425\L, Ford, 4/8/02, as the working document. There being no
objection, Version L was before the committee.
REPRESENTATIVE CRAWFORD, testifying as the sponsor of HB 395,
reminded the committee that this legislation [grew from the
complaints] of constituents that credit scoring had been used to
unfairly raise their [insurance] rates. The first draft was
patterned after Hawaii's law that banned credit scoring. After
the last hearing, he said he worked with the director of the
Division of Insurance, which led to the decision that the
Washington State model was better. He explained that the
Washington State model allows the insurance industry to continue
to use credit scoring in ways that are valuable to the company
while providing the ability to protect Alaskan consumers.
Furthermore, the division doesn't have the information with
regard to how credit scoring impacts the consumer and [Version
L] would allow further study to determine the real impacts.
Representative Crawford related his belief that credit scoring
impacts seniors, seasonal workers, people who have gone through
a divorce, first-time vehicle or homeowners, people with serious
medical emergencies, employees who have been laid off, members
of certain religions that don't use credit, some minority
groups, and users of Bush credit. Representative Crawford
concluded with his belief that [Version L] is a fair compromise.
Number 1388
DAVE D'AMATO, Staff to Representative Harry Crawford, Alaska
State Legislature, informed the committee that the compromise
[Version L] encompasses is the one used in Washington State.
Specifically, the underwriting and rate-saving methods of
insurance are allowed to use credit scoring with the exception
of certain particular facts. He directed the committee to page
2, line 13, paragraphs (1)-(6) listed under subsection (d).
There are many theories behind the exceptions listed in
paragraphs (1)-(6), he said. For example, Alaska has "Bush
credit" for those people in the Bush who don't use conventional
credit and thus those people wouldn't be impacted by an
insurance credit score. Furthermore, many of Alaska's seniors
don't use credit scores and some religious groups don't use
credit and many minority groups are denied credit or don't use
credit. The exclusion related to the number of credit inquiries
is a reasonable exclusion because many people don't have control
over companies making credit inquiries. Additionally, when one
shops for a car, a home, or insurance, inquiries for the
individual's credit report are generated. The third exclusion
addresses medical industry codes and that the instance of a
medical condition shouldn't be held against the individual who
had good credit prior to the medical condition. The fourth
exclusion is for the initial purchase of a vehicle or house. If
a credit history is used to deny obtaining homeowner's
insurance, it will hurt Alaska's economy and the attempts to
help those with bruised credit in entering into first time
homebuyer's situations. The fifth exclusion is a compromise
that goes to the heart of some of the proprietary information.
The final exclusion is related to the total line of credit. Mr.
D'Amato explained that the sixth exclusion is based on the
theory that those who can borrow more will likely have more
money and thus the poor will be disproportionately impacted.
The remainder of the CS is as it was [originally] presented.
MR. D'AMATO directed the committee's attention to page 6
[Section 3] regarding the report the director of the Division of
Insurance will provide to the legislature. He explained that
the importance of the January 1, 2004, date of the report is
that in July 2004 the Fair Credit Reporting Act is up for
review. The State of Alaska can then determine whether it wants
to limit credit scoring in underwriting. Therefore, it would
be helpful for the information requested in the report to be
available at that time as it would provide information with
regard to the impact of credit scoring on Alaskans. Mr. D'Amato
related his understanding from Mr. Lohr that there shouldn't be
a fiscal note if a report is required, although there would be a
fiscal note if a study is required.
MR. D'AMATO, in response to Representative Kott, explained that
the director of the State of Washington's Division of Insurance
initiated the investigation. Upon the investigation and
receiving testimony, the director met with consumer groups and
insurance companies. There was a relatively protracted
negotiation process whereby this legislation was fleshed out.
Although the compromise wasn't between Alaska's director of the
Division of Insurance, Mr. Lohr is in favor of this legislation.
In that regard, this legislation is a compromise between what
the division would probably like to see and what the insurance
companies agreed to in the State of Washington.
Number 1838
DAVID McCARTER testified via teleconference. Although Mr.
McCarter said that he preferred the Senate Bill that specified
that no credit profiling would be done. However, since that's
not going to happen, Mr. McCarter said that he would put his
support behind [CSHB 395, Version L]. Mr. McCarter related the
following personal experience with credit scoring. He explained
that his insurance company is leaving the state, and therefore
he has to find another insurance company. To his horror, he
discovered that his insurance rates were going to increase quite
significantly because of credit profiling. Mr. McCarter
informed the committee that his credit scores are all in the
600s, which is considered "A credit." However, the insurance
companies are placing him in the "D" class and penalizing him
for a tail light ticket. There doesn't seem to be any
protection for the consumer. Furthermore, no one specifies how
his credit score is determined. In conclusion, Mr. McCarter
said that [Version L] is a bit better, although it doesn't
really solve anything for him. The insurance companies are
hindering the economy, he remarked.
Number 2039
DAVID VALDEZ testified via teleconference. He said that
[Version L] is better than [the Senate Bill], which was gutted.
The [Senate Bill, once gutted] appeared to create a preferred
class of drivers at the expense of the working poor, those with
low credit scores, and people from the Bush and minority groups.
He related his belief that the aforementioned is wrong. Since
this can be done arbitrarily and capriciously without a place to
direct a grievance, it's unfair to the consumer.
Number 2105
TARA DRENNON testified via teleconference. Ms. Drennon
expressed concern that this legislation has no protections for
consumers like herself who have been a victim of identity theft.
REPRESENTATIVE CRAWFORD directed attention to page 2, line 28,
which indicates that those who dispute their rate and prove that
the rate was unfair can have their insurance reissued
retroactively. Representative Crawford related his
understanding that if someone's stolen identity resulted in the
individual having the thief's bad credit, the individual could
get that [their credit report] corrected and the insurance would
be reissued retroactively.
MR. DRENNON clarified that in her case her social security
number and birthday were stolen. Therefore, she has alerted the
credit bureau of this and tried to fight it. She stressed that
she didn't believe she should have to take in paperwork every
time there is the need for insurance in her family.
Furthermore, those people who may not be aware that someone has
stolen their identity won't be alerted by the underwriter
either.
Number 2262
LIZ OFELT testified via teleconference. She noted that she is
an insurance agent. With regard to [identity theft], Ms. Ofelt
informed the committee that even if an individual can get their
credit report corrected, credit reports are [only] updated on a
quarterly basis. She pointed out that often when people
purchase a new vehicle, the individual's current insurance
company will run a new motor vehicle report, a new credit score,
and a new claims report. If adverse credit appears, the company
will re-rate the individual's premium. Although there can be
corrections and credits, the problem isn't solved. Ms. Ofelt
informed the committee that she turns away clients weekly
because of their credit and [claim] loss scores. She said when
she recently became involved with insurance she couldn't believe
this was how people were rated.
CHAIR MURKOWSKI related her understanding that Ms. Ofelt would
pull up an individual's credit history, which specifies their
score.
TAPE 02-60, SIDE B
MS. OFELT clarified that based on an individual's driver's
license number, birth date, and name a letter score is provided
through [a credit reporting bureau system]. All the major
insurance companies place individuals with a credit score of A,
B, and C in the preferred rate bracket and the others are placed
in a high risk bracket. At her particular company, she can't
write a homeowner's insurance policy for those with a credit
score below a C. However, on auto insurance she can write
insurance for those with credit scores as low as an F. In
further response to Chair Murkowski, Ms. Ofelt said that the
letter credit score provides no indication with regard to why
the letter was assigned. The letter specifies an 800 number
that can be given to the client to obtain a free copy of their
credit report. However, that doesn't help the individual whose
insurance company drops the individual or re-rates the
individual's policy, or won't write insurance for the
individual. Furthermore, the individual won't be reimbursed and
the [coverage] won't be retroactive for the insurance, although
it may be retroactive on the individual's credit score.
Number 2249
STEVE CONN, Executive Director, Alaska Public Interest Research
Group (AkPIRG), testified via teleconference. Mr. Conn related
his belief that [Version L] could address some of the procedural
problems that have been mentioned. This legislation does
represent a compromise in that the original legislation in both
the House and the Senate sought to ban the use of credit
scoring. As a compromise, this legislation allows the use of
credit scoring and confidentiality of the proprietary device,
except being provided to the [director] of the Division of
Insurance who evaluates the device in the context of rate
increases or decreases. In the latter compromise over the
proprietary device, consumers can't examine the device.
However, the legislation does provide basic information to a
consumer who has been turned down for insurance. The denial of
insurance can't be based solely on the credit score, rather
there have to be other substantive factors as well which are
communicated to the consumer. Under this legislation and the
Fair Credit Reporting Act the consumer is in a better position,
in regard to addressing the underlying cause, than before. He
noted that the absence of credit and medical emergencies are
subjects that are not to be used in determining the insurability
of an individual. Although it's unfortunate that this
legislation doesn't speak to identity theft and domestic
relations, the legislation is a compromise that satisfied the
insurance industry and the consumers in the State of Washington.
Mr. Conn indicated that this legislation is better than nothing.
He mentioned the hope that the insurance industry will approach
the Congress and make the ability to repair a credit record,
under the Fair Credit Reporting Act, in a timely and efficient
manner more readily available to consumers. Such would function
as a device to improve credit scores.
Number 2040
MARK NEIHAUS, Progressive Insurance, testified via
teleconference. He informed the committee that Progressive
Insurance is the fourth largest automobile insurer in the
country and the fifth largest in Alaska. Progressive Insurance
uses credit [scoring] as part of its rating process in 45 of the
48 states in which it does business. Credit [scoring] has been
used in Alaska for the past four years. Detailed data
justifying the [use of credit scoring] was filed with the Alaska
Division of Insurance. After a rigorous review, the division
determined that [Progressive Insurance's credit scoring] was
predictive of loss and proper to be used. He pointed out that
the Fair Credit Reporting Act allows the use of credit [scoring]
in the underwriting of insurance and it's becoming the norm.
"Credit is an independent and powerful predictor of loss," he
said. Mr. Neihaus referred to a bar chart in the committee
packet entitled, "Credit is a Powerful Predictor". He explained
that the chart shows that grouping credits illustrates that
those folks with below average credit have a much higher
tendency for loss. Also individuals with no credit record at
all have an extremely poor loss history. However, he pointed
out that those with no credit history, "no hits," amount to
less than 5 percent of Progressive Insurance's total policies.
MR. NEIHAUS explained that as a result of offering credit
[scoring] in Alaska, Progressive Insurance has about 10,000
policies in force. In about two-thirds of those policies, the
consumer received a lower rate as a result of the use of credit
[scoring]. Mr. Neihaus explained that credit [scoring] is an
electronic process that pulls raw data from credit providers.
Progressive Insurance uses its own algorithm to calculate the
rate. Before [performing a credit check], the consumer's
permission to do so is obtained. The agents don't see the
credit data or score. In the event a policy holder receives an
adverse action notice, the notice contains an 800 phone number
and the customer can obtain a free copy of the credit report.
Upon request, the customer is given an 800 phone number that can
be called to obtain a report specifying the reasons for [the
credit score]. Mr. Neihaus specified that Progressive Insurance
doesn't consider any items in dispute with a credit vendor,
which he believes to be the case with the majority of insurance
companies using credit [scoring]. If an item is in dispute,
Progressive Insurance will change the premium retroactively.
Mr. Neihaus informed the committee that Progressive Insurance
confirms the premium at the point of sale, there are no up-rates
after the fact, no one is canceled or denied based on credit
[scoring]. He noted that the credit report includes
bankruptcies, judgments, tax liens, information on loans, and
credit limits, balances, and inquiries. The credit report
doesn't include the individual's gender, race, income, wealth,
and savings. Mr. Neihaus reiterated the belief that credit is a
powerful predictor of loss and allows the insurance company the
ability to offer lower rates to those who are less likely to
have claims. The majority of consumers are benefiting from the
use of credit [scoring].
Number 1887
MR. NEIHAUS turned to [Version L] and directed attention to page
1, lines 9-10, which says, "The notice must state the
significant factors of the credit history or insurance score
that resulted in the adverse action." He reiterated that the
aforementioned data is already provided to consumers. However,
the significant factors of the credit history report is only
provided upon request because of the expense in producing it,
and furthermore only a minority of people want that detailed
information. Therefore, Mr. Neihaus suggested that the
aforementioned sentence on page 1, lines 9-10, be amended to
read as follows: "The notice must state that consumers may
obtain, on request, a free report containing the significant
factors of the credit history or insurance score that resulted
in the adverse action."
MR. NEIHAUS moved on to page 5, lines 14-25. He emphasized that
not allowing insurance companies to use the number of credit
inquiries to calculate a personal insurance score would
significantly undermine the power of credit. That language
would effectively [result] in an increase in base rates in order
to offset that. Therefore, two-thirds of Progressive
Insurance's customers will experience higher rates due to the
inability to use the more predictive model. Mr. Neihaus
clarified that Progressive Insurance doesn't use insurance
inquiries, consumer inquiries, promotional inquiries, or account
review inquiries and those are typically not used by insurers.
Furthermore, the credit score providers will typically aggregate
any inquiries for the same item within a 30-day period. Mr.
Neihaus turned to paragraph (4) on page 5 and said that he
wasn't sure why the initial purchase or finance of a vehicle or
house wouldn't be included [during a credit check]. Frankly, he
said he wasn't sure how one would determine that it was the
initial finance or purchase of a vehicle. Mr. Neihaus said that
paragraphs (5) and (6) are predictive and if those can't be
used, then the rates will increase for the majority of
consumers.
MR. NEIHAUS addressed the effective date of the legislation.
From the process described in this legislation, it's clear that
the filing of data and approval of the data required will take
some time. There is no problem with filing the data, including
the detailed credit algorithm. However, he related his belief
that this will require a significant amount of time for
implementation. He estimated that the filing and review process
alone would take six to nine months and then the implementation
process could begin. A reasonable effective date would be well
into 2003, he said.
Number 1544
CHAIR MURKOWSKI turned to the group of people without a credit
history. She highlighted Alaska's unique situation in which
many residents in this state don't operate on the same cash
economy basis as would those in the [Lower 48]. Chair Murkowski
said that she didn't want Alaska's rural residents to be
penalized because they aren't part of the credit society that
customers in other states might be.
MR. NEIHAUS related his assumption that the division would
review that data specific to Alaska during a filing. He also
assumed that the division wouldn't approve a rate for those with
no credit history that isn't justified by the data. Therefore,
the process should cover Chair Murkowski's concern.
CHAIR MURKOWSKI recalled that Mr. Neihaus had identified
specific credit inquiries that Progressive Insurance doesn't
take into account. She asked if Mr. Neihaus had any suggestion
as to how to narrow credit inquiries.
MR. NEIHAUS reiterated that Progressive Insurance doesn't count
consumer credit inquiries against the individual. Furthermore,
he didn't believe any company he knew of that did either. He
said that it would be acceptable to specify that consumer credit
inquiries can't be considered in a [credit score]. An exclusion
for insurance inquiries, promotional inquiries, and account
review inquiries would also be acceptable, he said.
Number 1346
REPRESENTATIVE CRAWFORD asked if Progressive Insurance writes
insurance in the State of Washington under this credit scoring
law.
MR. NEIHAUS answered that Progressive Insurance does write
insurance in the State of Washington. However, he clarified
that the credit scoring law hasn't yet taken effect in the State
of Washington.
REPRESENTATIVE CRAWFORD turned to Mr. Neihaus' comment
suggesting the deletion of the exclusion for the number of
credit inquiries. He informed the committee that he has a
number of rental properties for which he has a number of
mortgages. After shopping around quite a bit, he refinanced a
number of those properties. However, during that process his
credit scores were lowered significantly and at the end of the
process he wasn't able to obtain the same low interest rate due
to the numerous credit inquiries. He pointed out that the only
change in his credit from the beginning of this process to the
end was the number of credit inquiries. Representative Crawford
said he didn't see how the number of credit inquiries could be a
good predictor for loss. In his case, all his home insurance
policies increased by 25 percent, although he has never had a
claim on his automobile or home insurance. Representative
Crawford related his belief that this legislation is a good
compromise.
MR. NEIHAUS pointed out that an individual's credit score
changes over time. Furthermore, the credit score is utilized
for new business and upon renewal after two years. He
reiterated his earlier testimony that data supports the notion
that those with more credit inquiries experience more losses.
Number 1127
MIKE HAROLD, Northwest Regional Manager, National Association of
Independent Insurers (NAII), testified via teleconference. The
National Association of Independent Insurers is a property
casualty trade association of which its members write well over
50 percent of the marketplace in Alaska. Mr. Harold echoed Mr.
Neihaus' testimony with regard to the correlation between credit
information and loss ratios. The more the use of credit
information is diminished, the more people without losses will
pay for those who do. Therefore, there is an issue of fairness.
He related that a policy holder should pay a premium that is
commensurate with the risk the policy holder represents. The
companies report that by using credit information they are able
to write more business, renew more policies, and accept more new
business due to the confidence that the rate being offered is
appropriate. Furthermore, the insurance companies are more able
to more aggressively and competently write in all markets.
Furthermore, the majority of the policy holders do receive lower
rates.
MR. HAROLD informed the committee that he was very involved in
the compromise on this in the State of Washington. At the time
of the credit scoring legislation in the State of Washington,
the state had a democratic legislature, governor, and
democratically elected insurance commissioner and attorney
general. The commissioner introduced the legislation after
discussing the issue with the National Association of Insurance
Commissioners (NAIC) in December. The governor as well as the
attorney general supported the legislation. And with a
"friendly" legislature, it was apparent that something would
pass in the State of Washington, he said. The bill before the
committee today [Version L] appeared in the Washington
legislature three to five days before a vote had to be taken.
By specifying the types of factors that can't be considered in
[credit scoring], it was virtually impossible for insurers and
vendors to be able to price the impact on consumers and [know
how well] the model would predict [risk]. He emphasized that
this committee should understand that the legislators and
insurance commissioner in the State of Washington supported
legislation without knowing its impact.
Number 0893
MR. HAROLD related his belief that [Version L] has a number of
problems. This legislation will have the unintended result of
making insurance less available and will dilute the
effectiveness of using insurance scores to determine risk, which
will ultimately reduce competition, he said. Furthermore, this
legislation will deny the policy holders the discounts they
deserve. As an example of the unintended consequences Mr.
Harold turned to the exclusion of "credit history or an
insurance score based on collection accounts identified with a
medical industry code". He pointed out that people respond to
medical and financial crisis in different manners. For
instance, one individual may do as much as possible to shuffle
their finances so that they can pay a medical bill while another
individual may simply not pay the bill. Therefore, under the
aforementioned language, the individual attempting to pay the
medical bill would actually be punished while the individual
simply not paying the bill would have [the lack of payment]
stricken from their record and would actually benefit.
Furthermore, this has a negative impact on smaller companies.
He explained that Progressive Insurance has a very sophisticated
rating structure with tiers and various member companies.
However, a smaller company might rely on credit information at
the underwriting stage and might not want to use it at the
rating stage or renewal stage. The more restrictions there are
with regard to the company being able to judge the risks that
enter the company, the more the company will be negatively
impacted. Without a proper assessment when the insurance is
first written, the smaller company doesn't have the option to
move the client into different tiers. Ultimately, the result of
this would be to dilute the competitiveness in the insurance
marketplace.
Number 0688
ELIZABETH MOCERI, Regional Counsel, Allstate Insurance Company,
testified via teleconference. Ms. Moceri noted her support of
the comments and concerns of Mr. Neihaus and Mr. Harold. She
informed the committee that she did quite a bit of work on the
State of Washington's legislation. Therefore, she felt the need
to dispel the notion that the legislation was compromised with a
lot of work from the insurance industry. Ms. Moceri informed
the committee that Allstate was given less than 24 hours to
provide comments on the impact of the State of Washington's
compromise legislation. She related that Allstate has great
concern with regard to the impact of Washington's legislation on
the Washington policy holders. Credit scores are predictable
and when the predictability of credit is diluted, the ability to
provide a competitive rate to policy holders is lost.
Currently, Allstate uses credit [scoring] in Alaska for
underwriting. The company has the goal of using credit scoring
in rating as well. However, the company doesn't want to share
what it considers to be proprietary information, such as the
company's algorithm, with competitors [via the requirement to
file it with the division]. With regard to the [exclusions] in
Version L, Ms. Moceri echoed Mr. Neihaus' comments that [with
the exclusions] the insurance company loses the ability to be
competitive. Losing the ability to be competitive results in
the reduction of the availability of an insurance product and
the inability to provide a competitive rate. Ms. Moceri
mentioned that Allstate is one of the largest insurers in
Alaska. Allstate accounts for 28 percent of the automobile
market and 20 percent of the homeowner's market.
REPRESENTATIVE CRAWFORD asked if Ms. Moceri heard Ms. Ofelt's
testimony regarding the fact that as an insurance agent she
can't [write a homeowner's policy for people with a score below
C].
MS. MOCERI said it's important to note that mortgage companies
use credit information differently. Insurance companies use
credit information to develop an insurance score and elements
that are predictive of insurance losses are reviewed. Ms.
Moceri said she wasn't familiar with the letter scores, Allstate
places policy holders into tiers. A rate is calculated based
on the tiering and other factors. She said that many companies,
like Allstate, use credit in underwriting because of the
difficulties related to guaranteeing the confidentiality of the
company's algorithm. If the confidentiality of the algorithm
was guaranteed, then consumers could be taken in with an
accurate rate. In further response to Representative Crawford,
Ms. Moceri acknowledged that [Version L] does make any
information to the director confidential, which [Allstate]
supports. She explained that Allstate performed its own study
based on its own policy holders from which its own scoring model
was developed. This scoring model allows Allstate to provide
lower rates to more people, she said. Due to the money spent on
the model, Allstate hasn't wanted to make its model available to
its competitors. "If a carrier can not use credit in rating,
they use it in underwriting and that's when ... you see people
being turned away," she explained.
Number 0211
REPRESENTATIVE CRAWFORD recalled Mr. Lohr's testimony that there
has never been a filing for a lower rate due to credit scoring.
Yet, all those testifying for the insurance industry today have
discussed lower rates for those with good credit scores.
However, he said he has [heard] no evidence of people having
lower rates.
MS. MOCERI surmised that this is an allocation of premium. Some
of the filings are revenue neutral because of the pricing with
the appropriate risk. She expressed the need to be mindful that
at the same time this discussion is occurring, there is a
hardening of the insurance market. In response to
Representative Kott, Ms. Moceri said that the State of
Washington's legislation was passed and signed by the governor
on April 4th. Washington's legislation has two effective dates.
The effective date related to underwriting is in January and the
effective date related to rating is at the end of June 2003.
With regard to compliance, Ms. Moceri noted that it takes
tremendous resources to create a new algorithm, which would be
necessary in order to comply with the statute.
TAPE 02-61, SIDE A
MS. MOCERI commented that many companies are probably
determining whether they have the money and resources to create
a new algorithm. Furthermore, it's challenging to meet the
market. She explained that on average it takes six to nine
months for the department's review once the department receives
a company's filing. Allstate is concerned that by the time the
filing is filed with the state, there will be an effective date
without any action by the state. She emphasized that every
company is going to have to submit a new filing, which will have
to be reviewed.
Number 0097
REPRESENTATIVE KOTT asked if Ms. Moceri anticipates that the
risk will be passed along to all the insurees and subsequently
rates will increase for a certain percentage of the insurees.
MS. MOCERI informed the committee that [Allstate] showed that
rates would increase, on average, 30 percent under the State of
Washington's original legislation. Under the current Washington
legislation, a new rate filing will be required and because of
the lack of predictive value the folks currently receiving
discounts will, under the legislation, subsidize those causing
the most losses.
REPRESENTATIVE KOTT asked Ms. Moceri if she could comment on
what happened with the rates of any other state with a measure
similar to that in the State of Washington.
MS. MOCERI said she wasn't aware of any other state that has
implemented legislation similar to that in the State of
Washington. In Hawaii there is essentially a ban on [the use of
credit scoring] and Hawaii has the 13th highest rates in the
U.S. Because Hawaii is very limited in regard to the factors
that can be used, there are some subsidies built into the rate
plan. Unfortunately, that means that the majority of the policy
holders who don't cause most of the insurance losses pay for the
policy holders who do cause insurance losses.
Number 0303
REPRESENTATIVE CRAWFORD asked if Ms. Moceri was aware that this
bill doesn't preclude the use of credit rating, it only
restricts its use.
MS. MOCERI reiterated that when all the predictive elements [of
credit scoring] are eliminated, then the ability to use credit
in rating is eliminated. She echoed Mr. Neihaus' comments on
this matter. In the State of Washington the exclusions were
added without no ability to review the total impact.
Number 0474
DEE HUBBARD testified via teleconference. Ms. Hubbard informed
the committee that she found out about credit scoring two-and-a-
half years ago and decided to approach her representative,
Representative Crawford. Ms. Hubbard said that she liked
Version L and has helped work on it. Ms. Hubbard related that
due to deaths in her family and the need to fly outside of
Alaska on emergencies, her credit [history] has large spikes.
She didn't think it was appropriate to be penalized for those
things when she attempted to obtain insurance. Ms. Hubbard said
that she would like to see the House bill move forward and that
she didn't like the Senate's version.
CHAIR MURKOWSKI determined that Mr. Michael Lessmeier, Lobbyist
for State Farm Insurance, and Mr. Bob Lohr, Director, Division
of Insurance, would be able to testify at a later time.
[HB 395 was held.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:10 p.m.
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