Legislature(2003 - 2004)

04/08/2003 02:05 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                         April 8, 2003                                                                                          
                           2:05 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Con Bunde, Chair                                                                                                        
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Gary Stevens                                                                                                            
Senator Bettye Davis                                                                                                            
Senator Hollis French                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 95                                                                                                              
"An Act  relating to strikes  by employees of a  municipal school                                                               
district,  a regional  educational  attendance area,  or a  state                                                               
boarding school, and  requiring notice of at least 72  hours of a                                                               
strike by those employees."                                                                                                     
     MOVED SB 95 OUT OF COMMITTEE                                                                                               
CS FOR HOUSE BILL NO. 118(RES) am                                                                                               
"An  Act  relating to  the  transportation  and sale  of  certain                                                               
commercially  caught fish  by an  agent of  a commercial  fishing                                                               
permit  holder and  to the  sale of  fish; and  providing for  an                                                               
effective date."                                                                                                                
     HEARD AND HELD                                                                                                             
SENATE BILL NO. 13                                                                                                              
"An Act  prohibiting discrimination  in insurance rates  based on                                                               
credit rating or  credit scoring; and providing  for an effective                                                               
     HEARD AND HELD                                                                                                             
PREVIOUS ACTION                                                                                                               
SB 95 - See HESS minutes dated 3/17/03, 3/24/03 and 4/3/03.                                                                     
HB 118 - No previous action to record.                                                                                          
SB 13 - No previous action to record.                                                                                           
WITNESS REGISTER                                                                                                              
Ms. Jacqueline Tupou                                                                                                            
Staff to Senator Lyda Green                                                                                                     
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 95 for Senator Green.                                                                     
Ms. Betty Walter, Superintendent                                                                                                
Kodiak Island Borough School District                                                                                           
722 Mill Bay Road                                                                                                               
Kodiak, Alaska  99615                                                                                                           
POSITION STATEMENT:  Commented on SB 95.                                                                                      
Mr. Mark Torgerson, Administrator                                                                                               
Alaska Labor Relations Agency                                                                                                   
Department of Labor & Workforce                                                                                                 
PO Box 21149                                                                                                                    
Juneau, AK 99802-1149                                                                                                           
POSITION STATEMENT: Commented on SB 95.                                                                                       
Representative Paul Seaton                                                                                                      
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of HB 118.                                                                                       
Mr. Doug Meecum, Director                                                                                                       
Division of Commercial Fisheries                                                                                                
Department of Fish & Game                                                                                                       
PO Box 25526                                                                                                                    
Juneau, AK  99802-5226                                                                                                          
POSITION STATEMENT: Commented on HB 118.                                                                                      
Ms. Annette Skibinski                                                                                                           
Staff to Senator Cowdery                                                                                                        
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Commented on SB 13.                                                                                      
Mr. Howard Dorsey                                                                                                               
201 Portlock St.                                                                                                                
Kenai AK 99611                                                                                                                  
POSITION STATEMENT: Supported SB 13.                                                                                          
Mr. Mark Niehaus, General Manager                                                                                               
Progressive Insurance                                                                                                           
No address provided                                                                                                             
POSITION STATEMENT: Opposed SB 13.                                                                                            
Ms. Linda Hall, Director                                                                                                        
Division of Insurance                                                                                                           
Department of Labor & Workforce                                                                                                 
PO Box 21149                                                                                                                    
Juneau, AK 99802-1149                                                                                                           
POSITION STATEMENT: Commented on SB 13.                                                                                       
Mr. Birny Birnbaum                                                                                                              
No address provided                                                                                                             
POSITION STATEMENT: Commented on SB 13.                                                                                       
Mr. Steve Cleary, Executive Director                                                                                            
Alaska Public Interest Research Group (AKPIRG)                                                                                  
PO Box 101093                                                                                                                   
Anchorage AK 99510                                                                                                              
POSITION STATEMENT: Supported SB 13.                                                                                          
Mr. Don Koch                                                                                                                    
Juneau AK                                                                                                                       
POSITION STATEMENT: Supported SB 13.                                                                                          
Ms. Marie Darlin                                                                                                                
AARP-Capital City Task Force                                                                                                    
POSITION STATEMENT: Supported SB 13.                                                                                          
Mr. Michael Lessmeier, Atty.                                                                                                    
State Farm Insurance                                                                                                            
Juneau AK                                                                                                                       
POSITION STATEMENT: Opposed SB 13.                                                                                            
ACTION NARRATIVE                                                                                                              
TAPE 03-19, SIDE A                                                                                                            
            SB  95-72-HOUR NOTICE OF TEACHER STRIKE                                                                         
CHAIR CON BUNDE called the Senate Labor and Commerce Standing                                                                 
Committee meeting to order at 2:05 p.m. All members were                                                                        
present. He announced SB 95 to be up for consideration.                                                                         
MS. JACQUELINE TUPOU,  staff to Senator Green, sponsor  of SB 95,                                                               
was present to answer questions.                                                                                                
SENATOR DAVIS offered Amendment 1.                                                                                              
CHAIR BUNDE objected for the purpose of discussion.                                                                             
SENATOR  DAVIS  told members  Amendment  1  was prepared  by  the                                                               
National Education Association of Alaska (NEAA).                                                                                
MS.   TUPOU  commented   that  she   received  an   opinion  from                                                               
legislative counsel  regarding problems  with the wording  in the                                                               
CHAIR BUNDE  noted that was aware  of a problem defining  a "lock                                                               
out." He said while the  committee was waiting for clarification,                                                               
Superintendent of  Kodiak Island  Borough School  District, Betty                                                               
Walters, wanted to comment.                                                                                                     
MS.   BETTY  WALTERS,   Superintendent,   Kodiak  Island   School                                                               
District,  said   the  Kodiak  District  is   involved  in  labor                                                               
relations  right now  and is  hoping for  a settlement.  However,                                                               
this  legislation would  help  the district  if  it goes  through                                                               
mediation  and  doesn't  come  up with  an  agreement.  It  would                                                               
provide  72-hours notice  to parents  and  community members  who                                                               
provide  child  care and  school  administrators  to prepare  for                                                               
school without "those valued certificated staff members."                                                                       
CHAIR BUNDE asked if  she had seen a copy of  Amendment 1 and she                                                               
indicated she hadn't.  He said he would get her  a copy and would                                                               
look forward to her comments.                                                                                                   
MR.  MARK   TORGERSON,  Department  of  Labor,   was  present  on                                                               
teleconference to answer questions.                                                                                             
SENATOR FRENCH  noted that  Amendment 1  said [a  district] could                                                               
not begin unilateral action against  its employees, including but                                                               
not limited to a lock out.                                                                                                      
SENATOR SEEKINS said he had never  heard of a lock out before and                                                               
asked if there has been one.                                                                                                    
CHAIR BUNDE  replied that  there has  not, nor  has there  been a                                                               
precipitous  strike  by teachers  for  which  the 72-hour  notice                                                               
would have been needed.                                                                                                         
SENATOR STEVENS said  he was trying to make sense  of Amendment 1                                                               
because the  whole purpose of the  bill seems to be  child safety                                                               
and he doesn't see how a lockout would be a safety issue.                                                                       
SENATOR DAVIS said she only  offered the amendment because it was                                                               
before  them and  hadn't been  discussed.  She did  not hear  any                                                               
approval  for  it  and  wasn't  prepared to  defend  it,  so  she                                                               
withdrew her motion.                                                                                                            
SENATOR SEEKINS  moved to pass  SB 95, Version A,  from committee                                                               
with individual recommendations and its zero fiscal note.                                                                       
A roll  call vote  was taken.  SENATORS STEVENS,  DAVIS, SEEKINS,                                                               
FRENCH and BUNDE voted yea, therefore it moved from committee.                                                                  
       CSHB 118(RES)am-TRANSPORTATION OF COMMERCIAL FISH                                                                    
CHAIR   BUNDE   announced   CSHB   118(RES)am  to   be   up   for                                                               
REPRESENTATIVE PAUL SEATON, sponsor,  explained that this measure                                                               
corrects a  situation that  allows only  process servers  to hire                                                               
tenders and pick  up fish on the fishing grounds.  This bill will                                                               
allow  fishermen to  consolidate  their catches,  fill out  their                                                               
required  paperwork  so  that   the  necessary  documentation  is                                                               
available  for  ADF&G,  and  run that  consolidated  catch  on  a                                                               
fishing  vessel  into  the  processor.  It  would  also  allow  a                                                               
fisherman or group of fishermen  to hire a tender, transfer their                                                               
fish to  that tender,  have the  fish ticket  made out,  and have                                                               
that transported to town for delivery.                                                                                          
He explained  that a  number of processors  have rolled  back the                                                               
number  of  tenders  they  hire.  That  is  problematic  for  the                                                               
fishermen  because, according  to statute,  they must  be at  the                                                               
dock  at the  time  of  delivery. This  bill  is  limited in  its                                                               
application to  the sale  of three  species: salmon,  herring and                                                               
Pacific cod.  It was amended  to say that all  incidental legally                                                               
caught fish could also be  delivered by the tender. Fishermen and                                                               
processors support this bill.                                                                                                   
SENATOR SEEKINS moved  to adopt SCS CSHB 118(L&C),  Version B, as                                                               
a working document. There were no objections.                                                                                   
CHAIR  BUNDE explained  that the  committee substitute  (CS) also                                                               
addresses  another  issue that  has  been  before this  committee                                                               
about obtaining social security  numbers [on fishing licenses] to                                                               
be used  for child support  enforcement. He asked if  a fisherman                                                               
without  a permit  gave his  fish to  someone with  a permit  for                                                               
transport that might create an enforcement problem.                                                                             
REPRESENTATIVE  SEATON  replied it  would  not  be anymore  of  a                                                               
problem than it  is using the current system.  This bill requires                                                               
all paper work to be filled  out and that requires all supporting                                                               
documents  and  identification. This  bill  does  not loosen  the                                                               
regulations.  In   fact,  it  will  provide   ADF&G  with  better                                                               
SENATOR STEVENS  said the Salmon  Task Force  saw it as  a useful                                                               
tool.  He  asked Representative  Seaton  if  the fish  ticket  is                                                               
issued when the fish are weighed  as they go into the transporter                                                               
or  whether  the  fish  ticket  is  written  when  the  fish  are                                                               
delivered to the processor.                                                                                                     
REPRESENTATIVE SEATON replied  that a fish ticket  is issued when                                                               
the fish are  transferred from the fishermen  to the transporter.                                                               
However,  some  flexibility  needs  to  be  provided  since  some                                                               
tenders will have  certified scales. The person  functioning as a                                                               
fisherman  and   a  transporter  has   to  have  a   fish  ticket                                                               
corresponding to  the amount of  fish onboard. The weight  has to                                                               
be  estimated,  if  nothing  else, and  the  accurate  weight  is                                                               
recorded when the fish is delivered to the processor.                                                                           
CHAIR BUNDE  asked if two boats  combined a catch of  dog and red                                                               
salmon and the  transporter put all the red salmon  on one ticket                                                               
and  the  dog  salmon  on   another,  which  would  amount  to  a                                                               
significant difference in  money, how that would  be regulated or                                                               
whether the fishermen would just have to trust each other.                                                                      
MR.  DOUG MEECUM,  Director,  Division  of Commercial  Fisheries,                                                               
ADF&G, said  the bill doesn't really  address private contractual                                                               
arrangements  between transporters  and  fishermen. The  existing                                                               
fish ticket system contains columns  to record the amount of each                                                               
species and the price that was paid.                                                                                            
He said  the division supports the  bill and that it  addresses a                                                               
priority  of the  Salmon Task  Force.  It might  reduce costs  to                                                               
fishermen and  lead to improvements  in quality. He  said [ADF&G]                                                               
may place limits on where it  will issue these permits, one being                                                               
Bristol Bay because of a  prohibition against having fish onboard                                                               
when a fishing vessel has gear on board.                                                                                        
CHAIR BUNDE  said the committee  would hold the bill  for another                                                               
        SB 13-INSURANCE DISCRIMINATION BY CREDIT RATING                                                                     
CHAIR BUNDE announced  SB 13 to be up for  consideration and said                                                               
the committee  would begin its  education on credit  scoring this                                                               
MS. ANNETTE SKIBINSKI,  staff to Senator Cowdery, said  SB 13 was                                                               
sponsored  by Senator  Cowdery and  Senator Elton.  She gave  the                                                               
following synopsis of the measure.                                                                                              
     Common sense tells us there's  no rational link between                                                                    
     a  person's  credit and  how  they  will drive  or  the                                                                    
     chances  that their  house will  burn down,  but it  is                                                                    
     common sense  to use  our driving  record or  how close                                                                    
     our home is  to a fire hydrant, what the  home is built                                                                    
     out  of, how  old it  is.  Credit scoring  is really  a                                                                    
     simple issue...                                                                                                            
     The way  credit scoring works  is it punishes  some. It                                                                    
     punishes those people  who get laid off  when a company                                                                    
     downsizes  and don't  immediately find  another job  at                                                                    
     the same income level. It  punishes people who have had                                                                    
     medical  problems and  have medical  bills, people  who                                                                    
     have  been  victims  of  identity  theft,  one  of  the                                                                    
     largest growing crimes in our  country. Someone who has                                                                    
     a burglary to  their home - how that  can be predicted,                                                                    
     I have no  idea. Or people who have  absence of credit.                                                                    
     Those are just  a few of the scenarios  that could lead                                                                    
     to  and do  lead  to somebody  having higher  insurance                                                                    
     premiums and rates...                                                                                                      
     Credit scoring  operates unfairly.  It's discriminatory                                                                    
     and has  little oversight. It treats  certain groups of                                                                    
     Alaskans worse than others and  increases the number of                                                                    
     uninsured  motorists on  the  road.  We have  mandatory                                                                    
     insurance laws in the state and  it is not a choice for                                                                    
     an individual to drive without insurance...                                                                                
CHAIR  BUNDE expressed  concern  about the  possibility that  the                                                               
Legislature might  make it  too difficult  to write  insurance in                                                               
Alaska and when the choice goes down, the price goes up.                                                                        
MS.  SKIBINSKI responded  that is  a valid  concern but  she said                                                               
credit scoring  has been banned  in other states and  their rates                                                               
are  not  higher. She  noted  that  people  were able  to  obtain                                                               
insurance  at reasonable  rates before  credit scoring  came into                                                               
MR. HOWARD  DORSEY, a Kenai  resident, agreed with  Ms. Skibinski                                                               
and said  he started a business  four years ago and  has seen his                                                               
premiums  for  company  liability   and  auto  insurance  go  up,                                                               
partially  because of  his credit  history,  which hasn't  always                                                               
been that great  as a new company. He said  the consumer needs to                                                               
understand  how credit  scoring  is  used and  not  just take  an                                                               
insurance company's word for it.                                                                                                
CHAIR BUNDE  asked Mr. Dorsey  if he thought his  insurance rates                                                               
increased primarily because of credit scoring.                                                                                  
MR.  DORSEY said  he hadn't  checked with  other water  treatment                                                               
companies but the rates of a company  he works with had gone up a                                                               
little bit.                                                                                                                     
SENATOR COWDERY  asked if  anyone ever indicated  to him  that he                                                               
got a better rate because of credit scoring.                                                                                    
MR. DORSEY said no.  His rates go up each year  and he hadn't had                                                               
an accident  in years.  He thought  the increase  had to  do with                                                               
inflation  and  credit scoring.  When  asked  about their  credit                                                               
scoring policies, insurance companies refuse to disclose them.                                                                  
CHAIR BUNDE asked if he had shopped around for other insurance.                                                                 
MR. DORSEY  said he  has looked  but the  number of  companies is                                                               
limited for his type of  insurance. Typically, the first quote he                                                               
gets is the lowest one, then the rate goes up upon renewal.                                                                     
CHAIR  BUNDE jested,  "That couldn't  be bait  and switch,  could                                                               
SENATOR COWDERY  said he found out  last year that the  number of                                                               
hits  on  a  person's  credit record  by  other  agencies  worked                                                               
against that person's credit score.                                                                                             
MR. MARK  NIEHAUS, General  Manager, Progressive  Insurance, said                                                               
Progressive is the third largest  writer of auto insurance in the                                                               
country  and  has  about  17,000   policyholders  in  the  state.                                                               
Progressive has successfully  been using credit as  an element of                                                               
its rates in  Alaska for about six years. There  has been a whole                                                               
raft  of  independent analysis  of  the  use  of credit  and  its                                                               
correlation with  losses. Progressive is required  to provide the                                                               
Division of  Insurance with detailed  data justifying its  use of                                                               
credit  and  Progressive  must   answer  all  of  the  division's                                                               
questions.  Progressive   must  prove  that  credit   scoring  is                                                               
predictive of loss  and that it does not have  a disparate impact                                                               
on certain groups of individuals.                                                                                               
He  explained that  in addition  to filing  all of  its actuarial                                                               
data,  Progressive files  its actual  credit  models. Since  that                                                               
information is  public, the  division will  provide it  to anyone                                                               
who wants to see it. The  division will show the nine elements in                                                               
it that  are easily  understood. He offered  to give  members the                                                               
detailed algorithm. He explained  that Progressive doesn't use it                                                               
to refuse to insure a consumer  or to non-renew or cancel anyone.                                                               
Progressive doesn't  consider anything that is  being disputed by                                                               
a  consumer  in  a   credit-reporting  agency.  Progressive  also                                                               
doesn't consider  medical or business debts.  Progressive informs                                                               
consumers that it  is going to use this  information and provides                                                               
its customers  with an opportunity  to get  a free copy  of their                                                               
credit reports.  On request, Progressive  also gives  consumers a                                                               
report that shows the reasons  their credit was less than perfect                                                               
and gives direction on how their credit score can be improved.                                                                  
He  said  Progressive  is also  pioneering  a  credit  assistance                                                               
system that  isn't in use  in Alaska yet.  It consists of  a toll                                                               
free number  that accesses  a personalized  report on  a person's                                                               
credit score  for each of  the variables compared to  the average                                                               
of the complete  population in the state  and provides reasonable                                                               
exceptions based on extraordinary  life events, like catastrophic                                                               
injuries, death of a spouse, business loss, etc.                                                                                
MR. NIEHAUS said the division  prepared an analysis of complaints                                                               
on this  issue and  only five complaints  that dealt  with credit                                                               
were received. None  of those complaints was  deemed justified by                                                               
the division.  He said  the Alaska division  did a  credit study,                                                               
with privacy caveats,  to look at what market  someone got placed                                                               
in  with the  best  estimate of  credit and  the  one thing  that                                                               
jumped out of  that report was that older folks,  in general, get                                                               
placed  in the  more  preferred markets.  Their  data shows  that                                                               
older consumers,  in general, have better  credit scores. Banning                                                               
the use of  credit would force them to raise  rates on a majority                                                               
of their policyholders  and disproportionately disadvantage older                                                               
Alaskans as a result.                                                                                                           
He summarized that the reasons  Progressive opposes SB 13 is that                                                               
it would  force Progressive to  raise rates on two-thirds  of its                                                               
customers (11,000 policyholders) Good  drivers would be forced to                                                               
subsidize drivers more likely to  have accidents. The Fair Credit                                                               
Reporting  Act specifically  allows companies  to use  credit and                                                               
would supersede this particular law.  This would create an uneven                                                               
playing field.  Companies like  Progressive who  have independent                                                               
agents would not  be able to compete with  outside companies that                                                               
send  direct-mail  solicitations  who  would be  allowed  to  use                                                               
credit information.  27 other states have  enacted legislation to                                                               
ban  the use  of credit  and  none of  those resulted  in a  ban,                                                               
although some states did restrict its use somewhat.                                                                             
He told members  that last year many people worked  late into the                                                               
session to address some of  the specific issues that were raised.                                                               
The  National Conference  of  Insurance  Association developed  a                                                               
model bill  to address many  of the issues, i.e.  the information                                                               
that can  get used, a  resolution and a verification  process. He                                                               
recommended that the Legislature look  at that particular bill as                                                               
a place  to start  on this  issue for a  better solution  than an                                                               
outright ban.                                                                                                                   
CHAIR BUNDE asked Mr. Dorsey if  he was a customer of Progressive                                                               
Insurance and he indicated that he was.                                                                                         
CHAIR BUNDE  asked him if  he had asked Progressive  about credit                                                               
scoring information and how it is  used and whether he was denied                                                               
a response.                                                                                                                     
MR. DORSEY replied that he  had not received that information and                                                               
wasn't aware that he could.                                                                                                     
TAPE 03-19, SIDE B                                                                                                            
CHAIR  BUNDE asked  Mr. Niehaus  how  a customer  could get  that                                                               
MR.  NIEHAUS  replied that  customers  can  get that  information                                                               
today  by  adverse action  notice  that  is provided  with  their                                                               
policies when they  receive them. The adverse action  notice is a                                                               
one-page  document  that  says  if their  credit  was  less  than                                                               
perfect, they could  call a toll-free number and get  a free copy                                                               
of their  credit reports and are  free to make disputes  with the                                                               
credit  vendor.   Any  disputed  items  would   be  removed  from                                                               
consideration in their credit score.                                                                                            
CHAIR BUNDE asked  if Mr. Dorsey would have been  notified if his                                                               
insurance had increased based on a credit score.                                                                                
MR. NIEHAUS  replied he  would get an  adverse action  notice and                                                               
would have  to call  the toll-free number  to request  his credit                                                               
CHAIR  BUNDE asked  if an  out-of-state company  that did  a mail                                                               
order  business  here  would  have  to  comply  with  Alaska  law                                                               
regarding credit scoring.                                                                                                       
MR.  NIEHAUS  responded  that  the   Fair  Credit  Reporting  Act                                                               
specifically allows  the use of  credit in underwriting  and that                                                               
includes pre-screening  people. So, out-of-state  companies could                                                               
choose to send a mail offering  of insurance only to those people                                                               
with good  credit. That  law would supersede  Alaska law  on this                                                               
CHAIR BUNDE  asked the Director  of the Division of  Insurance if                                                               
it  is true  that Alaska  law  would only  affect companies  with                                                               
agents  who  are   residents  of  Alaska  and   that  mail  order                                                               
businesses could avoid this law.                                                                                                
MS.  LINDA HALL,  Director, Division  of Insurance,  replied that                                                               
she  is  not  an  expert  in this  area  and  there  are  several                                                               
conflicting  legal  opinions  on   the  issue.  She  thought  the                                                               
committee  is  talking  about  two  different  issues.  What  Mr.                                                               
Niehaus is  saying in regard  to national companies is  that they                                                               
are  pre-screening,  not  selling  insurance, as  opposed  to  an                                                               
independent  agent who  may  disclose  that he  or  she will  use                                                               
credit scoring  when a  customer walks into  an office  and makes                                                               
She  explained that  national companies  pre-screen  by taking  a                                                               
company  list   from  someplace,  like  Northwest   Mileage  card                                                               
holders, whose  pre-screened names  are sometimes solicited  by a                                                               
company based  in New York for  auto insurance. They are  able to                                                               
do that on a federal level.                                                                                                     
SENATOR  STEVENS  asked  Mr.  Niehaus to  address  the  issue  of                                                               
identity theft.                                                                                                                 
MR.  NIEHAUS said  a person  can notify  a credit  vendor if  the                                                               
person is aware  of the theft. The credit vendor  will then put a                                                               
red flag  on that file and  notify the company that  some data is                                                               
not valid.  If the person  is unaware their identity  was stolen,                                                               
the only  way they would become  aware is through the  process of                                                               
adverse action or they could  call Progressive to get information                                                               
that someone  else was using  their credit  inappropriately. They                                                               
would  dispute those  items and  anything disputed  would not  be                                                               
SENATOR FRENCH  commented to  Mr. Niehaus that  it seemed  he was                                                               
saying  bad credit  equals high  risk  and asked  how that  logic                                                               
could fairly apply to someone who  suddenly lost a job or who has                                                               
just gone through a divorce.                                                                                                    
MR. NIEHAUS  replied that  Progressive has  a credit  system that                                                               
will  make  adjustments for  those  kinds  of extraordinary  life                                                               
events.  In   general,  those  events  affect   credit,  but  not                                                               
necessarily permanently.  Credit is  a snapshot  in time  and can                                                               
change.  If someone  is  going  through a  divorce  and a  spouse                                                               
damages  their credit,  they  can contact  the  credit vendor  to                                                               
dispute  those  items. If  someone  loses  a job,  that  person's                                                               
credit  wouldn't necessarily  deteriorate because  income is  not                                                               
considered in a credit report.                                                                                                  
SENATOR  FRENCH countered  that often  a person  who loses  a job                                                               
loses the ability to make  payments. He thought it was completely                                                               
unfair. A  newly divorced person who  is looking for a  new place                                                               
to live, dealing with children, etcetera,  is not going to have a                                                               
lot of energy to devote to  hunting down the reason her insurance                                                               
rate went up, even if it's just a small amount.                                                                                 
SENATOR SEEKINS asked how many  states currently prohibit the use                                                               
of credit scoring.                                                                                                              
MR. NIEHAUS  replied that Alaska prohibits  credit bureau rating,                                                               
which is not defined in  the statute. That statutory provision is                                                               
about 30 years old. It is  a matter of some litigation right now.                                                               
Hawaii and California do not allow it by regulation.                                                                            
SENATOR SEEKINS  asked if Progressive  writes insurance  in those                                                               
two states.                                                                                                                     
MR. NIEHAUS replied it does.                                                                                                    
SENATOR SEEKINS  asked how Progressive determines  rates in those                                                               
MR.  NIEHAUS replied  Progressive doesn't  use credit  and, as  a                                                               
result, customers who  have better credit are  paying more (about                                                               
two-thirds of customers) and the  other third is paying less than                                                               
they otherwise would.                                                                                                           
SENATOR SEEKINS asked what variables  are used to determine rates                                                               
in those states.                                                                                                                
MR.  NIEHAUS  replied  that all  states,  including  Alaska,  use                                                               
credit as  only one  component of setting  a rate.  Other factors                                                               
include  age,  sex,  marital  status, type  of  vehicle  and  its                                                               
limits,  locale and  driving record,  among other  things. Hawaii                                                               
has  chosen by  statute to  not allow  insurers to  use age  as a                                                               
factor. He said, "In Hawaii, a  16-year old pays the same rate as                                                               
a  45-year old.  Unfortunately,  that means  the  45-year old  is                                                               
paying  more   for  insurance  to   subsidize  the   16-year  old                                                               
SENATOR  SEEKINS  asked what  variable  Progressive  uses on  its                                                               
MR.  NIEHAUS replied  that  he  would provide  the  list, but  it                                                               
basically consists  of delinquencies, ratio of  balances to total                                                               
available credit, and charge-offs, among other things.                                                                          
SENATOR  SEEKINS  questioned  his statement  that  two-thirds  of                                                               
customers  would  pay   lower  rates  by  using   the  method  of                                                               
increasing the rates on the other third.                                                                                        
MR. NIEHAUS' reply was indiscernible.                                                                                           
SENATOR SEEKINS asked  Mr. Niehaus to provide  an actuarial basis                                                               
for that.                                                                                                                       
CHAIR BUNDE asked him to  provide the committee with a comparison                                                               
of a basic policy in Hawaii versus one in Alaska.                                                                               
SENATOR  COWDERY  asked  how many  credit  companies  Progressive                                                               
works with to give scores.                                                                                                      
MR.  NIEHAUS answered  that Progressive  works  with one  primary                                                               
vendor and also has a backup  vendor in case the primary vendor's                                                               
computer  system goes  down or  in case  it couldn't  access that                                                               
information for other reasons.                                                                                                  
SENATOR  COWDERY asked  how he  addressed  four different  credit                                                               
scores from four different companies.                                                                                           
MR. NIEHAUS responded that Progressive  doesn't use credit scores                                                               
from those companies. They get just  the raw data on balances and                                                               
other things  from the  vendors. Progressive  has its  own credit                                                               
scoring algorithm for each of  provider that it creates from that                                                               
raw data.                                                                                                                       
SENATOR COWDERY said  a lot of people spend an  average of $2,000                                                               
per month  on a particular  credit card  even though they  have a                                                               
higher limit,  but the average  monthly figure is the  one that's                                                               
used for their credibility.                                                                                                     
MR.  NIEHAUS replied  that  Progressive looks  at  credit over  a                                                               
period of time and a person  wouldn't be penalized if the balance                                                               
was very high and is now very  low. He noted, "It's a snapshot at                                                               
a point in time."                                                                                                               
SENATOR  COWDERY asked  if  Progressive looks  at  the bank  card                                                               
limit and  asked if cards with  no limits are bad,  like American                                                               
MR. NIEHAUS  said Progressive looks  at limits and cards  with no                                                               
limits are not included.                                                                                                        
SENATOR COWDERY commented  that he didn't see how  they could use                                                               
any form of  credit scoring to figure out when  a person is going                                                               
to have a theft of something  and that's what they have insurance                                                               
SENATOR DAVIS  asked if Mr.  Niehaus considers credit  scoring to                                                               
be race neutral.                                                                                                                
MR.  NIEHAUS  replied that  Progressive  doesn't  gather data  on                                                               
race, but  it does use zip  codes and the division  has looked at                                                               
that  issue  as   part  of  its  study.  The   study  found  that                                                               
policyholders  in  the  lower  income zip  codes  and  in  higher                                                               
minority  zip  codes  had a  greater  proportion  of  individuals                                                               
qualify for a lower rate when credit scoring was used.                                                                          
SENATOR DAVIS said a study  by the federal department involved in                                                               
urban development  showed that 27  percent of Caucasians  show up                                                               
as bad  credit risks,  as opposed to  37percent of  Hispanics and                                                               
about 48 percent of African-Americans.                                                                                          
MR. NIEHAUS  responded that he  is aware  of that study  and that                                                               
the  Alaska study  was specific  to Alaska.  He hadn't  looked at                                                               
that  data on  a  nationwide  basis, but  that  is something  the                                                               
division  could  review  when  the  companies  file  their  data,                                                               
because they are submitting it by zip code.                                                                                     
MR. BERNY  BIRNBAUM said he  provided the committee  with written                                                               
comments and that he would comment at a later meeting.                                                                          
MR. STEVE CLEARY, Executive Director,  AKPIRG, supported SB 13. H                                                               
noted  that Mr.  Niehaus said  good drivers  would subsidize  bad                                                               
drivers  if credit  scores  are  not used,  but  he believes  the                                                               
reverse would be true. Right now  it seems that good drivers with                                                               
bad credit are  subsidizing others because their  credit is being                                                               
unfairly used against them for  their insurance rates. He thought                                                               
the exceptions,  like divorce and losing  a job, are more  of the                                                               
rule.  He stated  the credit  and insurance  industries use  many                                                               
different types of  credit scoring and, as a  consumer, he didn't                                                               
know how they were figuring out his insurance rates.                                                                            
MR.  DON KOCH,  retired state  employee, said  he worked  for the                                                               
Division of  Insurance for 27.5  years and currently has  a small                                                               
firm that  examines insurance  companies. He  was on  the initial                                                               
working  group that  considered credit  history for  the National                                                               
Association of Insurance Commissioners  (NAIC). He explained that                                                               
there are several uses for credit history and credit scoring.                                                                   
     Not every  company that uses  credit history  is credit                                                                    
     scoring. Some, for example, will  take a credit history                                                                    
     and  then take  components of  that credit  history and                                                                    
     determine  whether  they  like  the  risk  or  not.  It                                                                    
     strikes  me   that  that's  a  bit   inconsistent,  but                                                                    
     nevertheless  that is  the case.  Those companies  that                                                                    
     are   using   credit   scoring  generally   have   some                                                                    
     algorithms that you can't get to very readily.                                                                             
     My particular preference is that  this bill go forward.                                                                    
     I happen  to agree with the  idea of a ban.  However, I                                                                    
     think if  you don't go  with a complete ban,  there are                                                                    
     other things that should  be considered. Certainly, one                                                                    
     of them is  if you do allow some form  of use of credit                                                                    
     history, credit  scoring with whatever  limitations you                                                                    
     place on it,  you need, absolutely, the  ability of the                                                                    
     Division of Insurance  to be able to go in  and look at                                                                    
     everything  without any  consideration for  whether the                                                                    
     data is considered proprietary or  whether that data is                                                                    
     in third-party hands;  and if they can't do  that or if                                                                    
     the company won't  allow it, then they can't  use it. I                                                                    
     think it should be as simple as that....                                                                                   
MR. KOCH  noted that the bill  is very broad and  runs the danger                                                               
of  impacting lines  of business  that probably  ought not  to be                                                               
banned. He counseled  them to put this legislation  in the Unfair                                                               
Trade Practices Act,  AS 21.36, rather than in  the rate section,                                                               
AS 21.39. The  advantage would be that AS 21.39  reaches not only                                                               
rates and  unfair discriminations that  occur there, but  it also                                                               
reaches the  underwriting, which is  not dealt with in  the other                                                               
CHAIR BUNDE  asked who might  employ him to examine  an insurance                                                               
MR.  KOCH replied  state  government and  that  currently he  has                                                               
contracts with several  states, but he doesn't have  any with the                                                               
State of Alaska.                                                                                                                
MS. MARIE DARLIN, AARP-Capital City  Task Force, supported SB 13,                                                               
because a  lot of  members had  insurance go  up and  hadn't been                                                               
able to  find out why.  They know now that  it could be  from the                                                               
absence of  using credit. Her own  car insurance had gone  up $90                                                               
for  six months  and  she has  had no  tickets  or accidents  and                                                               
hadn't  filed any  claims  ever.  People who  have  tried to  get                                                               
information  from the  insurance companies  have had  very little                                                               
CHAIR  BUNDE asked  if  she  knew of  any  members  who had  been                                                               
notified that their rates were going up because of credit.                                                                      
MS. DARLIN  said she  didn't personally,  but their  state office                                                               
had a lot of contacts from seniors on this issue.                                                                               
MR.  MICHAEL  LESSMEIER, State  Farm  Insurance,  said he  didn't                                                               
think it  was a fair assumption  to say that insurance  rates are                                                               
going up because  of credit. The reality is,  particularly in the                                                               
automobile insurance market in the  state of Alaska over the last                                                               
number of years,  the insurance market has been a  very poor one.                                                               
Losses  have  been  significant.  State Farm,  the  largest  auto                                                               
insurer in Alaska, has lost millions of dollars.                                                                                
CHAIR  BUNDE  asked  if  it  is State  Farm's  policy  to  notify                                                               
customers of an adverse credit report that affected rates.                                                                      
MR. LESSMEIER  replied that it's  complicated because  State Farm                                                               
does not  use credit  scoring in Alaska  for purposes  of setting                                                               
rates. The  only time they use  it is at the  initial application                                                               
for auto  insurance; State Farm  doesn't use  it at all  for home                                                               
insurance. In those cases, if  there is an adverse credit impact,                                                               
the customer is given information  about what that is. State Farm                                                               
has a brochure that explains it in detail.                                                                                      
He said they spent a great  deal of time on this legislation last                                                               
session and worked  hard to come up with a  compromise that would                                                               
address the  sponsor's concerns -  with medical  bills, insurance                                                               
inquiries, etc. Since then, in  November, the National Conference                                                               
on  Insurance  Commissioners  came  up  with  a  model  piece  of                                                               
legislation that is being considered by 13 other states.                                                                        
He urged  them not  to ban  the use of  this tool  that insurance                                                               
companies use differently. It is  a highly competitive market and                                                               
the insurance  industry is one  of the most regulated  in Alaska.                                                               
He  also noted  that  the Division  of  Insurance approves  every                                                               
insurance rate  that is  set in  this state.  It already  has the                                                               
power  to address  any unfair  discrimination or  impact. It  has                                                               
found that the  number of complaints about the use  of credit has                                                               
been five,  but the number  of complaints  it found where  it has                                                               
been misused is  zero. State Farm had used it  with their clients                                                               
for around three years and has had very few complaints.                                                                         
SENATOR COWDERY  agreed that he  made a handshake  agreement last                                                               
year that  he wouldn't  change the  bill in  conference committee                                                               
but at  the very  next meeting the  insurance industry  wanted to                                                               
change it. That's why he pulled the bill last year.                                                                             
CHAIR BUNDE adjourned the meeting at 3:30 p.m.                                                                                  

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