Legislature(2001 - 2002)
05/01/2002 03:55 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
May 1, 2002
3:55 p.m.
MEMBERS PRESENT
Representative Lisa Murkowski, Chair
Representative Andrew Halcro, Vice Chair
Representative Kevin Meyer
Representative Norman Rokeberg
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
Representative Pete Kott
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 270(L&C)
"An Act extending the termination date of the Board of
Dispensing Opticians; relating to the regulation of dispensing
opticians; and providing for an effective date."
- HEARD AND HELD
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
CONFIRMATION HEARINGS
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: SB 270
SHORT TITLE:DISPENSING OPTICIANS:EXTEND BD/REGULATION
SPONSOR(S): RLS BY REQUEST OF LEG BUDGET & AUDIT
Jrn-Date Jrn-Page Action
02/01/02 2089 (S) READ THE FIRST TIME -
REFERRALS
02/01/02 2089 (S) L&C, FIN
02/14/02 (S) L&C AT 1:30 PM BELTZ 211
02/14/02 (S) Moved CS(L&C) Out of
Committee
02/14/02 (S) MINUTE(L&C)
02/19/02 2222 (S) L&C RPT CS 3DP 1NR SAME TITLE
02/19/02 2222 (S) DP: STEVENS, DAVIS,
TORGERSON;
02/19/02 2222 (S) NR: AUSTERMAN
02/19/02 2222 (S) FN1: (CED)
03/25/02 2517 (S) FIN RPT CS(L&C) 5DP 3NR
03/25/02 2518 (S) DP: KELLY, AUSTERMAN, OLSON,
WILKEN,
03/25/02 2518 (S) LEMAN; NR: DONLEY, GREEN,
WARD
03/25/02 2518 (S) FN1: (CED)
03/25/02 (S) FIN AT 9:00 AM SENATE FINANCE
532
03/25/02 (S) Moved Out of Committee
03/25/02 (S) MINUTE(FIN)
03/28/02 (S) RLS AT 8:30 AM FAHRENKAMP 203
03/28/02 (S) -- Time Change --
03/28/02 (S) MINUTE(RLS)
04/02/02 2586 (S) RULES TO CALENDAR 4/2/02
04/02/02 2588 (S) READ THE SECOND TIME
04/02/02 2588 (S) L&C CS ADOPTED UNAN CONSENT
04/02/02 2589 (S) ADVANCED TO THIRD READING
UNAN CONSENT
04/02/02 2589 (S) READ THE THIRD TIME CSSB
270(L&C)
04/02/02 2589 (S) PASSED Y18 N- E2
04/02/02 2589 (S) EFFECTIVE DATE(S) SAME AS
PASSAGE
04/02/02 2593 (S) TRANSMITTED TO (H)
04/02/02 2593 (S) VERSION: CSSB 270(L&C)
04/03/02 2770 (H) READ THE FIRST TIME -
REFERRALS
04/03/02 2770 (H) L&C, FIN
04/12/02 (H) L&C AT 3:15 PM CAPITOL 17
04/12/02 (H) Heard & Held
04/12/02 (H) MINUTE(L&C)
04/17/02 (H) L&C AT 3:15 PM CAPITOL 17
04/17/02 (H) <Bill Postponed>
05/01/02 (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
04/19/02 (H) Heard & Held
MINUTE(L&C)
05/01/02 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
Heather Brakes, Staff
Senator Gene Therriault
Alaska State Legislature
Juneau, Alaska 99801
POSITION STATEMENT: Testified in support of SB 270.
Catherine Reardon, Director
Division of Occupational Licensing
Department of Community & Economic Development
PO Box 110806
Juneau, Alaska 99811-0806
POSITION STATEMENT: Responded to questions on behalf of the
department of Commerce.
DAVID D'AMATO, Staff
to Representative Harry Crawford
Alaska State Legislature
Juneau, Alaska 99801
POSITION STATEMENT: Testified in support of HB 395.
MICHAEL LESSMEIER, Attorney
Lessmeier & Winters;
Lobbyist for State Farm Insurance Company
3000 Vintage Boulevard, Suite 100
Juneau, Alaska 99801
POSITION STATEMENT: Characterized [credit scoring] as a
powerful tool for predicting future loss.
JIM FURUNESS
AARP Capital City Task Force;
National Association of Retired Federal Employees
1285 Fritz Cove Road
Juneau, Alaska 99801
POSITION STATEMENT: Announced support of [CSHB 395].
CARRIE TOLLEFSON, Legislative Director
Washington State Office of the Insurance Commissioner
(No address provided)
POSITION STATEMENT: Discussed Washington State's legislation,
after which HB 395 was modeled.
BOB LOHR, Director
Division of Insurance
Department of Community & Economic Development
3601 C Street, Suite 1324
Anchorage, Alaska 99503-5948
POSITION STATEMENT: Testified in support of HB 395.
ACTION NARRATIVE
TAPE 02-70, SIDE A
Number 0001
CHAIR LISA MURKOWSKI called the House Labor and Commerce
Standing Committee meeting to order at 3:55 p.m.
Representatives Murkowski, Meyer, Rokeberg, and Crawford were
present at the call to order. Representatives Halcro and Hayes
arrived as the meeting was in progress.
SB 270-DISPENSING OPTICIANS:EXTEND BD/REGULATION
Number 0078
CHAIR MURKOWSKI announced that the first order of business would
be CS FOR SENATE BILL NO. 270(L&C), "An Act extending the
termination date of the Board of Dispensing Opticians; relating
to the regulation of dispensing opticians; and providing for an
effective date."
Number 0110
REPRESENTATIVE ROKEBERG move to adopt HCS CSSB 270, labeled 22-
LS1382\S, Lauterbach, 5/1/02, as the working document. There
being no objection, it was so ordered.
Number 0153
HEATHER BRAKES, Staff to Senator Gene Therriault, Joint
Committee on Legislative Budget and Audit, Alaska State
Legislature, testified on behalf of the sponsor of SB 270. She
noted that she had just obtained a copy of the proposed HCS,
which repeals the board and makes licensure an optional system.
An applicant who wishes to be licensed as a dispensing optician
would fulfill the requirements under Section 3 of the bill. The
department could require a home-study course, she mentioned.
She reminded the committee that SB 270 was drafted based on the
audit report which made a case for eventually going to a
voluntary registration system for dispensing opticians.
REPRESENTATIVE ROKEBERG directed attention to Section 11, AS
09.55.560, which deletes "a dispensing optician licensed under
AS 08.71" from the definition of health care provider. Does
this affect whether they could still be reimbursed as a health
care provider, he asked.
Number 0397
CATHERINE REARDON, Director, Division of Occupational Licensing,
Department of Community & Economic Development (DCED), reviewed
the references in Sections 11 and 12 and stated that they do not
affect health insurance reimbursements. Section 11 relates to
arbitration agreements, and Section 12 relates to medical
records and the peer review process.
CHAIR MURKOWSKI asked how the transitional provisions of Section
14 would play out if this bill were adopted.
MS. REARDON explained that people with existing licenses could
renew their licenses, although it's not necessary to require
them to apply on time, as stated in this bill. Licensing
requirements are getting easier in this bill, so there's no need
to make it more restrictive. She suggested working on the
language of line 21. There's no need to eliminate any people
from the renewal option, she remarked.
Number 0609
CHAIR MURKOWSKI inquired as to the impact this legislation would
have on fees and the registration processes.
MS. REARDON said there would be a savings of $3,000-$5,000 a
year in travel because the board wouldn't exist and division
staff costs would go down. However, license renewals by fewer
people could become more expensive because there would be fewer
members. She clarified that the division is not expressing
support for the bill.
CHAIR MURKOWSKI asked if the division has received any feedback
from board members about the repeal of the board.
MS. REARDON related that the one board member she has spoken
with is opposed to closing the board.
CHAIR MURKOWSKI announced that the public testimony on Version S
would be postponed because committee members just received a
copy of the HCS, which is quite different from the Senate's
version. She invited the public who couldn't return for the
hearing on Friday to fax comments to the committee.
Number 0871
REPRESENTATIVE ROKEBERG asked Ms. Reardon to clarify whether the
board would discontinue or sunset this year or next.
MS. REARDON, in response to Representative Rokeberg, explained
that if the legislature doesn't act, next year would be the wind
down year and the board would disappear a year from now.
[CSSB 270(L&C) was held over.]
HB 395-INSURANCE DISCRIMINATION BY CREDIT RATING
Number 0901
CHAIR MURKOWSKI announced that the final order of business 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."
REPRESENTATIVE ROKEBERG moved to adopt CS HB 395, 22-LS1425\0,
Ford, 5/01/02, as the work draft. There being no objection, it
was so ordered.
DAVID D'AMATO, Staff to Representative Crawford, described the
minor changes to the earlier version. He noted that the
industry has had the opportunity to review the addition on page
1, lines 6-8, which says an insurer must obtain the applicant's
oral or written permission in order to use credit scoring for
insurance purposes. He pointed out the language that was
inserted in paragraph (4) located on both page 2, line 23 and
[on page] 5, line 15. The proposed CS also changes the
effective date to January 1, 2003. These provisions were
deleted because the insurance industry objected and the
Washington Division of Insurance found the provisions unwieldy.
REPRESENTATIVE ROKEBERG asked how these provisions were
unwieldy.
MR. D'AMATO explained that the regulators and insurance industry
found the lack of definition for "initial purchase" unwieldy and
questioned whether it referred to a new house and car or new
financing for a used car or old house. The language was too
ambiguous. Originally this bill was the same as Washington and
Connecticut's regulations. When those states determined these
provisions were not workable, "we" followed their example.
Number 1199
MR. D'AMATO further explained how paragraph (4) in [in Version
L] worked on page 5, line 15. It was the failure of those
provisions to be adequately defined that was problematic, he
said.
Number 1242
CHAIR MURKOWSKI turned to subsection (b) on page 1, line 9. She
recalled from [testimony provided by] Progressive Insurance that
if a citizen who receives a notice of adverse action can request
get a statement detailing the reasoning behind it. However,
subsection (b) has been changed to provide that the insurer
shall provide written notice when there is an adverse action.
Therefore, any adverse action taken requires the full detailed
notice and the statement of the factors that led to the adverse
action.
Number 1304
MR. D'AMATO said this section has not been changed from the
previous version before the committee. He explained the
reasoning for providing the notice. The credit score formulated
by the insurance company was part of a formula to which people
didn't generally have access versus the credit rating that
people can access. Credit documents provide an explanation and
a table whereby one can see there's a negative score. However,
an insurance score is part of a larger algorithm and if there's
a problem with it, one wouldn't know what the problem is unless
[the insurance industry] actually tells them. For example, the
consumer should be aware that the use of a particular credit
card is viewed as a problem by the insurance industry. If
insurers distinguish themselves from the normal credit model,
they should explain how their model works to consumers, he
remarked.
CHAIR MURKOWSKI acknowledged that subsections (b) wasn't
different rather the subsections were relettered.
Number 1466
MICHAEL LESSMEIER, Attorney, Lessmeier & Winters, Lobbyist for
State Farm Insurance Company, began by relating that there are
certain number of things that aren't in reasonable dispute about
the issue of credit. For instance, there is general agreement
that different companies use [credit scoring] differently, which
illustrates that the free market system in this area of
insurance is working well in Alaska. He also noted that
different companies use [credit scoring] differently at
different times. For example, at the time of the last hearing
State Farm was using credit scoring with homeowner's insurance
and although that is no longer the case, it may change in the
future. "The ability to be able to use [credit scoring] is
important," he said. He then pointed out that another point
beyond dispute is the fact that the Fair Credit Reporting Act
will allow the direct writers to use credit scoring to prescreen
applicants. Therefore, what is done today will only impact
insurance written by Alaskan insurance brokers.
MR. LESSMEIER turned to an item he said was beyond reasonable
dispute, which is the [notion] that there is a high correlation
between the underwriting score that uses credit and the
predictability of future loss. He recalled that the
representative from the Division of Insurance testified to this
correlation. Mr. Lessmeier informed the committee that State
Farm began as a skeptic of the use of credit scoring.
Therefore, State Farm took 1.3 million records and divided those
records into two groups. One group was made up of 800,000
records and the other was a control group of 500,000 records.
With the 800,000 records, the company reviewed various factors
that were viewed as predictable of future loss. Of those
factors, those thought to be most predictive were used to create
a model that was subsequently applied to the control group of
500,000 records. That control group was followed for two years.
The result was the finding that the correlation between the
underwriting score that uses credit and the predictability of
future loss was very high. That model was applied to 1 million
live cases and again the correlation was found to be remarkably
high. For example, those in the 10 percent highest category
have more than twice the loss than those in the lowest category.
Mr. Lessmeier characterized [credit scoring] as a powerful tool
predicting future loss. Therefore, if the goal is for insurers
to be able to charge a fair premium, one that correlates with
the predictability of loss, then [credit scoring] is a useful
tool in helping achieve that goal.
MR. LESSMEIER remarked that the use of credit in Alaska hasn't
been a problem. Therefore, he suggested that the division has
tools in place to address the event that the use of credit is
being misused. For example, the division must already have the
ability to access credit scoring information when evaluating
rates. However, the law is problematic in that the model itself
isn't confidential. With regard to underwriting, Mr. Lessmeier
pointed out that there is also a statutory provision that if
different classes of risk are treated differently, without an
adequate justification, then those can be found to be an unfair
trade practice. Mr. Lessmeier reiterated that there isn't a
problem with credit scoring in Alaska because the director of
the division already has the tools to address this issue if it
were misused. He noted that he has had extensive discussions
with the sponsor in the Senate and with Representative Crawford
in an attempt to create additional tools for the director while
allowing [credit scoring] to be used on behalf of the industry.
To that end, "I think we've come a long way," he said. He
expressed hope that there will be legislation that will be
agreeable to both Senator Cowdery and Representative Crawford.
Number 1787
REPRESENTATIVE MEYER related his understanding that Mr.
Lessmeier and the industry he represents do not support [Version
O].
MR. LESSMEIER answered in the affirmative.
REPRESENTATIVE MEYER asked if Mr. Lessmeier supported the
similar legislation in the Senate.
MR. LESSMEIER said, "I think we are getting very, very close to
having a bill that ... would be acceptable to my client."
However, he indicated that the industry may not have had an
opportunity to review the [current proposal]. In further
response to Representative Meyer, Mr. Lessmeier specified that
the division director's job is to monitor complaints. He said
he believes there have been very few complaints about credit
[scoring]. Furthermore, it's difficult to respond to the misuse
of credit [scoring] without knowing the information. He said
that the real test is whether there has been a complaint to the
division and whether it has been investigated and found to be
valid. Mr. Lessmeier acknowledged that [credit scoring], a tool
like any other tool, could be misused. Therefore, the question
is whether the division director has the adequate ability to
stop any misuse. "We have worked very hard to try to create a
balance that allows the tool to be used, but also does give the
director additional power. We don't think he needs it, but
there are some that do," he remarked.
Number 1890
REPRESENTATIVE MEYER recalled that in earlier discussions there
was some question as to the direct correlation between an
individual's credit score and driving record. He interpreted
Mr. Lessmeier to be relating that as far as State Farm is
concerned there is a direct correlation.
MR. LESSMEIER answered that [credit scoring offers] the
predictability of loss. He informed the committee that State
Farm's model is based on credit and loss history. State Farm
believes the correlation is very high, he related, and thus
[credit scoring] helps State Farm determine who to write or who
not to write. Therefore, State Farm doesn't want to be deprived
of that tool. In further response to Representative Meyer, Mr.
Lessmeier explained that State Farm's auto insurance model
considers loss history and citations, which are combined with
credit factors. Each factor is given a weight in order to
develop a score. That score is only utilized when someone is
making an application initially. Mr. Lessmeier clarified that
State Farm doesn't use [credit scoring] to rate. For
homeowner's insurance, the only reason State Farm used [credit
scoring] was to write someone that it wouldn't have otherwise
written whereas for automobile insurance [credit scoring] may
have been used to not write someone.
Number 1990
REPRESENTATIVE CRAWFORD related his understanding that this
legislation isn't precluding the use of credit scoring.
MR. LESSMEIER replied no and acknowledged that Representative
Crawford has worked hard to craft a compromise.
REPRESENTATIVE CRAWFORD recalled Mr. Lessmeier's statement that
credit scoring is a good predictor [of risk] and pointed out
that redlining of zip codes a few years ago was said to be a
good predictor [of risk].
MR. LESSMEIER acknowledged that credit scoring could be used to
[do what was done with red-lining of zip codes] a few years ago.
He noted that the only [research] he was aware of was a Virginia
study which found that [red-lining on the basis of zip codes]
was not occurring. Mr. Lessmeier remarked that he didn't know
of any evidence that any company in Alaska has used credit
scoring to [do red-lining].
REPRESENTATIVE CRAWFORD specified that the insinuation isn't
that State Farm is redlining certain areas. However, [credit
scoring] has the same effect when certain groups of people are
redlined, such as seniors. Representative Crawford emphasized
that people have financial setbacks which have no correlation to
whether those folks are a good or bad credit risk. This as a
policy call with regard to the proper use of credit scoring, he
said.
MR. LESSMEIER remarked that he didn't know of any evidence that
credit scoring penalizes seniors in any way. In fact, if the
use of this tool was studied with the assumption that everyone
used credit scoring in the same way, he said he would be
surprised that it would penalize seniors or young people. He
suggested that the findings would reveal that the use of credit
scoring with oversight would have a high predictability. Then,
the policy decision would be one regarding whether those
identified as being in categories of higher groups of loss
should be priced accordingly. Without pricing the
aforementioned accordingly, the responsible people pay more for
those creating the loss, which State Farm views as unfair, he
said. He echoed earlier comments that there is no evidence of
the misuse of credit scoring in Alaska. Furthermore, the
division, even without this legislation, has the tools to
prevent misuse. With this legislation, the division has more
tools.
REPRESENTATIVE CRAWFORD turned to the standardization of laws
and noted his observation that the country as a whole is moving
toward regulation and limiting the use of credit scoring. This
legislation is modeled after legislation in Connecticut and the
State of Washington. "Wouldn't it be good to have basically the
same set of laws to work with in each state," he asked.
MR. LESSMEIER related his understanding that the State of
Washington's law is so restrictive that the model cannot be
used. Mr. Lessmeier pointed out that every state has a
different regulatory system and thus he didn't believe it's
possible to achieve a uniform model. Mr. Lessmeier noted that
although the National Association of Insurance Commissioners
(NAIC) attempts to gain uniformity with the passage of insurance
laws, he didn't believe the NAIC has accepted model legislation
[in this area]. Ad hoc laws are being created by individual
states, he said. "Just because they have a bad bill in
Washington, doesn't mean we ought to use that as a model and
create a bad bill in Alaska," he remarked.
Number 2272
JIM FURUNESS, AARP Capital City Task Force; National Association
of Retired Federal Employees, began by saying that credit
scoring of insurance rates discriminates against older people.
Mr. Furuness announced support of [CSHB 395] because of the
belief that it will eliminate some of the discrimination. For
example, a individual who doesn't use credit regularly may face
a negative and discriminatory score under the credit scoring
method. Older individuals who don't use credit shouldn't be
forced to pay higher insurance premiums simply because of their
reluctance to build debt. Furthermore, credit scoring shouldn't
be used in determining automobile insurance rates.
TAPE 02-70, SIDE B
Number 2323
CARRIE TOLLEFSON, Legislative Director, Washington State Office
of the Insurance Commissioner, testified via teleconference.
She noted that Representative Crawford had requested that she
provide testimony regarding Washington State's credit scoring
legislation, in particular the process and the stakeholder
involvement. Ms. Tollefson remarked that the credit scoring
process in Washington State was very dynamic and began when the
current commissioner was running for office. The commissioner
heard about credit scoring from insurance agents during his
campaign. Insurance agents expressed concern with the use of
credit scoring because long-term clients were being turned down
for insurance. Furthermore, there was trouble predicting with
which company the clients could be placed because the credit
scoring formulas were proprietary. The Washington State Office
of the Commissioner has received several hundred letters, phone
calls, and e-mails from consumers commenting on credit scoring.
Therefore, the commissioner felt he had no choice but to review
the issue and thus the commissioner met with those in the
industry individually and as a group as well as with those
companies that create credit scoring models. Additionally, the
commissioner held public meetings throughout the state in order
to hear what consumers were experiencing. The commissioner was
surprised by the turn out at the public meetings.
MS. TOLLEFSON informed the committee that in Washington State it
was found that credit scoring was being used across the board by
nearly all insurance companies. However, companies used credit
scoring differently. Therefore, legislation specifying that
credit scoring couldn't be used in underwriting at all was
developed. Initially, there wasn't much substantive feedback,
which she guessed was because of the thought that the
legislation was too radical and would easily die. There was
really no discussion until it became evident that there was
clear bipartisan support for the legislation. Ms. Tollefson
pointed out that throughout the process there was concern over
the 20 percent rate cap. Companies were concerned that the 20
percent rate cap would result in rates and premiums increasing
for those with good credit scores. Therefore, comments were
solicited and other states were reviewed in order to develop an
alternative approach. That was when [Connecticut's law] was
found. [Connecticut's law] seemed to address some of the most
egregious factors. For example, small business owners who keep
lines of credit open, although those lines of credit aren't in
use. Those business owners shouldn't be penalized for having
high lines of credit. The Connecticut approach seemed to be
moderate and have a lot of logic. Therefore, the [Washington
State] legislation was changed to reflect the Connecticut
approach, which led to some significant discussions and
dialogue. This is the point at which the process became very
dynamic in Washington State, she said. She noted that there was
industry involvement throughout the process.
MS. TOLLEFSON concluded by saying that the final bill passed in
Washington State represented a lot of compromise. The insurance
industry worked hard with the interested parties. In fact, one
of the major companies in Washington supported the bill as did
the independent insurance brokers and agents in Washington. She
noted that several companies didn't like the bill and agreed to
walk away. At the end of the process, the only entity that
actively opposed the bill was the National Association of
Independent Insurers (NAII). Although the legislation wasn't a
consensus bill, it did represent much compromise.
MS. TOLLEFSON, in response to Chair Murkowski, clarified that
the effective date on Washington State's bill is two part. The
underwriting portion of the bill will be effective January 2003
and the rate portion will be effective June 2003.
Number 1996
BOB LOHR, Director, Division of Insurance, Department of
Community & Economic Development, announced that the division
supports HB 395 because the division believes there is a need
for additional regulation of the use of credit history and
credit scoring in insurance underwriting and rating. This
legislation addressed issues that are of concern to consumers,
such as not being renewed because of a credit score.
Furthermore, this legislation provides appropriate restrictions
on some types of credit information that may not be considered
in calculating a credit score, such as medical credit history,
purchase of a home or vehicle, and type of credit card used by
the consumer. Mr. Lohr noted that previous testimony has
indicated that limitations on the use of credit information will
make insurance less available and less competitive. However,
these claims haven't been supported by documentation.
MR. LOHR stated that the division believes there are three
important provisions in HB 395 that should be retained. He
indicated that those provisions are in the following locations:
page 2, lines 1-4; page 2, lines 15-25; and page 5, lines 6-19.
Those specific regulatory tools are highly desirable for the
division. Mr. Lohr pointed out that the debate surrounding the
authority the division needs could quickly devolve into a
philosophical discussion. Mr. Lohr hoped that the division has
shown that it's not a rogue regulator. Therefore, he suggested
that if the authority in HB 395 is assigned to the division, the
division would use the tool responsibly. Mr. Lohr related the
division's belief that credit scoring is a valid tool.
Furthermore, there is a sufficiently valid correlation between
credit scoring and the loss experienced for auto and home
insurance to justify its use when properly regulated.
Number 1831
CHAIR MURKOWSKI highlighted Mr. Lessmeier's testimony that there
was no NAIC model available that relates to credit scoring for
insurance.
MR. LOHR said he believes that is the case, although there is
work being done in that area. He highlighted that NAIC models
are often the result of a state's idea. Therefore, he wasn't
sure that the lack of an NAIC model is an argument against
legislation such as HB 395.
MR. LOHR, in further response to Chair Murkowski, said that
there have been a number of complaints. The typical consumer
complaint has been that a renewal quote was astronomically
larger than what the consumer has been paying, although the
consumer hasn't had tickets or accidents. In those cases,
credit scoring seems to have been the factor, he remarked. Such
complaints [are often] moot because the consumer moves to an
insurance carrier that doesn't use credit scoring. However, as
the number of companies using credit scoring increases, finding
companies not using credit scoring may become difficult.
Number 1736
REPRESENTATIVE CRAWFORD asked if the tools and the report
provided under the legislation are appropriate.
MR. LOHR answered that the current version of HB 395 provides
the division with the necessary tools to appropriately restrict
the use of credit scoring while preserving its purpose as a
rating and underwriting tool for insurers. He related his
belief that the legislation does achieve the proper balance of
providing restrictions to ensure that unfair discrimination is
not the result of the use of this tool and that the uses of it
for purposes of underwriting and rating are proper.
CHAIR MURKOWSKI drew attention to Section 1 of [Version O] where
the language specifies that credit scoring can't be used unless
oral or written permission is obtained from the applicant. It
seems that allowing oral permission would provide the insurer an
easy out when there are complaints.
MR. LOHR said that Chair Murkowski has a good point, although
requiring written permission requires paperwork. Therefore, he
viewed this as a judgment call with regard to the appropriate
balance. Mr. Lohr highlighted that Section 1 [could also be
problematic] when a customer denies permission to use credit
scoring; what are the consequences in such a situation, he
asked. Therefore, Section 1 could perhaps have some clarity in
regard to the consequences of the denial of permission and the
degree of documentation required.
CHAIR MURKOWSKI agreed that [Section 1] is a loose area.
MR. LOHR mentioned that he agrees there may be proprietary value
to [credit scoring] models and confidentiality of the model as a
trade secret is probably appropriate. However, the public
deserves to know that the division has the tools and is
regulating credit scoring properly before the models "go behind
the black curtain." Therefore, adequate legislation and
implementation of that legislation are required.
[HB 395 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:05 p.m.
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