03/21/2013 01:30 PM Senate LABOR & COMMERCE

             SB  55-INSURER'S USE OF CREDIT SCORES                                                                          
                                                                                                                                
2:01:27 PM                                                                                                                    
CHAIR  DUNLEAVY announced  the consideration  of SB  55. "An  Act                                                               
relating  to  actions by  insurers  based  on credit  history  or                                                               
insurance score." He noted that this was the second hearing.                                                                    
                                                                                                                                
2:01:46 PM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
2:02:35 PM                                                                                                                    
CHAIR  DUNLEAVY   reconvened  the   meeting  and   opened  public                                                               
testimony.                                                                                                                      
                                                                                                                                
2:02:49 PM                                                                                                                    
MICHAEL DUNSMORE, representing  himself, Anchorage, AK, testified                                                               
in  opposition to  SB  55.  He said  that  the  basic concept  of                                                               
allowing credit  scores to be  used to determine  insurance rates                                                               
is flawed.  He heard  testimony that  an insurance  company could                                                               
impose a  higher rate  if a  person has a  poor credit  score and                                                               
lower the rate  if a person has a good  credit score. However, he                                                               
has  a  hard  time  believing that  an  insurance  company  would                                                               
voluntarily  give  a  lower  rate  than  was  offered  initially,                                                               
because that is not a good business model.                                                                                      
                                                                                                                                
He offered his  belief that it would be a  poor decision to allow                                                               
insurance agencies to base their  billings on a credit score that                                                               
is  inherently not  transparent  and that  the legislature  can't                                                               
review.  This would  not benefit  the  people of  Alaska, but  it                                                               
would give  insurance companies another arbitrary  reason to deny                                                               
coverage or  increase rates. In  particular, the concept  of this                                                               
bill has the  potential to hurt low-income people.  They are more                                                               
likely  to have  other concerns  than paying  attention to  their                                                               
credit  scores and  are  more likely  to  have difficulty  paying                                                               
their bills.  This bill would  make it possible for  insurance to                                                               
penalize them more  and provide higher costs  for their insurance                                                               
coverage. He asked the committee not to pass SB 55.                                                                             
                                                                                                                                
2:07:43 PM                                                                                                                    
DANIEL  LYNCH, representing  himself, Soldotna,  AK, said  he was                                                               
testifying in support of common sense  and against SB 55. He said                                                               
credit  ratings should  have zero  influence on  insurance rates.                                                               
Insurance worthiness  would be better  judged by high  school and                                                               
college grades,  height, weight,  or physical health,  not credit                                                               
scores from  an independent corporate  business that is  known to                                                               
have up to 40 percent inaccurate information.                                                                                   
                                                                                                                                
He pointed  out that  people are  constitutionally entitled  to a                                                               
right  of privacy.  Therefore, it  is a  violation of  a person's                                                               
privacy  for a  private  credit rating  organization  to use  the                                                               
person's  credit information  if the  person doesn't  voluntarily                                                               
provide it.  A person's driving  record, the value of  their car,                                                               
home  construction  methods,  renter's belongings  and  distances                                                               
from fire suppression or flood  plains is information that can be                                                               
obtained   without   privacy   violations.   Noting   that   some                                                               
legislators have  stated that accessing  a person's  credit score                                                               
is already  allowed when the  initial policy is written,  he said                                                               
two wrongs  don't make a  right and the initial  policy procedure                                                               
should be voided.                                                                                                               
                                                                                                                                
MR.  LYNCH said  he has  a  commercial driver's  license and  has                                                               
driven in  Alaska for  20 years with  no DUIs,  moose collisions,                                                               
accidents, or tickets, yet his  premiums have increased with each                                                               
bill. He imagined that his  credit score is nonexistent or skewed                                                               
since  he  has   no  loans,  credit  cards,   payment  plans,  or                                                               
subscriptions to credit agencies. He  said that most young people                                                               
are  just beginning  to establish  credit, but  one layoff  slip,                                                               
late payment,  or health problem increases  their insurance rates                                                               
and that isn't  right. He urged the committee to  get back to the                                                               
basics and protect the consumer, not the corporations.                                                                          
                                                                                                                                
2:11:49 PM                                                                                                                    
GEORGE PIERCE,  representing himself,  Kasilof, AK,  testified in                                                               
opposition to SB  55, because an insurance  company accessing his                                                               
credit score is an invasion of his privacy.                                                                                     
                                                                                                                                
2:12:57 PM                                                                                                                    
KENTON  BRINE,  Northwest  Regional Manager  and  Assistant  Vice                                                               
President,  Property  Casualty  Insurers Association  of  America                                                               
(PCI), Olympia, WA,  said PCI is a national  trade association of                                                               
property casualty  insurance companies.  Many of  these companies                                                               
write policies in  Alaska and they represent about  35 percent of                                                               
the home and  auto insurance in this marketplace.   He offered to                                                               
answer questions.                                                                                                               
                                                                                                                                
SENATOR  MICCICHE asked  if it  was  his position  that the  bill                                                               
would not raise people's insurance rates.                                                                                       
                                                                                                                                
MR. BRINE  relayed that  federal antitrust  laws forbid  him from                                                               
predicting  rates  in  a  marketplace,   but  PCI  has  testified                                                               
previously that credit-based  insurance scores benefit consumers.                                                               
Credit  is  an accurate  predictor  and  studies show  it  either                                                               
improves the  insured's risk or  does no harm. He  referenced the                                                               
testimony  today and  clarified  that credit  scoring is  already                                                               
allowed  for  insurance companies.  The  bill  simply allows  the                                                               
practice to  continue when a  policy renews. He  highlighted that                                                               
studies show  that a significant  number of  Alaska policyholders                                                               
are receiving rate increases because  insurance companies have to                                                               
strip  out the  credit  at renewal  and  rerate the  policyholder                                                               
after two years. That is causing  rates to go up in Alaska today,                                                               
but  that   would  end  if   insurers  were  allowed  to   use  a                                                               
policyholder's credit at renewal.                                                                                               
                                                                                                                                
SENATOR MICCICHE said  he understands some of  the opposition. He                                                               
related  an experience  two constituents  had  when they  renewed                                                               
their  vehicle  insurance  policy  and  observed  that  the  rate                                                               
increase appeared to  be somewhat arbitrary. He  asked what would                                                               
keep some  other, potentially arbitrary,  factor from  being used                                                               
to set insurance rates in the future.                                                                                           
                                                                                                                                
MR. BRINE disagreed with the  characterization that rates are set                                                               
arbitrarily because the models  are sophisticated and preapproved                                                               
by the insurance department. He  said he couldn't speculate about                                                               
what occurred with the  policyholders Senator Micciche mentioned,                                                               
but some  rating factors  must have  been unfavorable  or factors                                                               
that were  not related  specifically to  those people  might have                                                               
caused rates  to increase within  a tier. He reiterated  that one                                                               
of  the  benefits of  credit  scoring  is  that  it is  a  highly                                                               
accurate predictor  of loss, although  it may not  make intrinsic                                                               
sense  to some  people. He  said that  other rating  factors that                                                               
might  interfere  with  a  person's ability  to  get  lower  cost                                                               
insurance fall  to a  lower level of  rating criteria  and credit                                                               
tends to replace it in  those circumstances. He stated his belief                                                               
that it  would be an  overall benefit  to consumers in  Alaska to                                                               
pass this legislation. It would  make Alaska more competitive and                                                               
attract more insurance companies to the state.                                                                                  
                                                                                                                                
2:20:17 PM                                                                                                                    
SENATOR MICCICHE  said his  concern is  for those  consumers that                                                               
find the  process somewhat  of a mystery  and don't  realize that                                                               
there is a correlation between their credit scores and ranking.                                                                 
                                                                                                                                
CHAIR  DUNLEAVY  asked  Mr.  Kolb if  the  administration  had  a                                                               
position on the bill.                                                                                                           
                                                                                                                                
MR. KOLB offered his belief that  the bill would be beneficial to                                                               
consumers  in  Alaska  and   offer  opportunities  for  insurance                                                               
companies  to  be  more competitive  in  their  pricing,  because                                                               
credit  scores or  the  use of  an insurance  score  does have  a                                                               
statistical correlation to future risk.                                                                                         
                                                                                                                                
CHAIR DUNLEAVY closed public testimony and solicited a motion.                                                                  
                                                                                                                                
2:22:01 PM                                                                                                                    
SENATOR  MICCICHE  moved  to  report  SB  55,  28-LS0404\N,  from                                                               
committee  with  individual  recommendations  and  attached  zero                                                               
fiscal note(s).                                                                                                                 
                                                                                                                                
2:22:30 PM                                                                                                                    
SENATOR ELLIS stated  that a number of his  constituents have had                                                               
problems  with  credit  ratings, credit  scores,  and  inaccurate                                                               
information, so he  wasn't a big supporter of  the bill. However,                                                               
he would not object to moving the bill from committee.                                                                          
                                                                                                                                
CHAIR  DUNLEAVY  found  no  further  comments  or  objection  and                                                               
announced that  SB 55  moved from the  Senate Labor  and Commerce                                                               
Standing Committee.