Legislature(2017 - 2018)BELTZ 105 (TSBldg)
03/28/2017 09:00 AM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearings | |
| SB98 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 51 | TELECONFERENCED | |
| *+ | SB 93 | TELECONFERENCED | |
| *+ | SB 98 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 98-INSURER'S USE OF CREDIT HISTORY/SCORES
9:43:42 AM
CHAIR COSTELLO reconvened the meeting and announced the
consideration of SB 98. She said this is the first hearing and
the intent is to hear the introduction, take questions, take
public testimony, and hold the bill for further consideration.
9:44:38 AM
LAURIE WING-HEIER, Director, Division of Insurance, Department
of Commerce, Community and Economic Development (DCCED),
introduced SB 98 on behalf of the administration. She explained
that credit scoring is a tool that insurance companies use for
personal lines of insurance for homeowner, auto, watercraft, RV,
and motorcycle insurance. She clarified, "It is not used when
one is purchasing health insurance."
A consumer's credit history is one factor insurance companies
use to determine an insurance score. A consumer's insurance
score is predictive of their risk of filing claims and the
extent of those claims. If a consumer's credit score improves,
he/she may be in a preferred program, but if it deteriorates
he/she may be in a less tiered program that would have a higher
rate.
SB 98 also adds a provision for extenuating life circumstances.
That gives a consumer who has had a death in the family, loss of
employment, military deployment, or other factors that a prudent
person would recognize as extenuating, a right to appeal if they
feel that their insurance score has placed them in a tiered
program that is lower than previously or has impacted their
premium.
9:47:20 AM
MS. WING-HEIER provided a sectional analysis for SB 98 speaking
to the following prepared document:
Section 1
The subsection is amended to require an insurer
writing personal insurance that uses credit
information in underwriting or rating a consumer at
the time of renewal to disclose to the consumer that
the insurer will obtain credit information in
connection with the renewal. It also replaces the word
"applicant's" with "consumer's" because the
requirement now applies to both new applicants and
existing policyholders.
9:49:09 AM
SENATOR MEYER asked if consumers will still be required to sign
the waiver to allow the insurance company to access their credit
history to determine their insurance score each time their
policy is up for renewal.
MS. WING-HEIER answered no; consumers will simply be notified of
the fact. If the insurance company found an issue with the
insurance score, they would notify the consumer of the options
to dispute the insurance score.
SENATOR STEVENS asked why this does not apply to health
insurance and whether the bill makes that clear.
MS. WING-HEIER clarified that health insurance has never used
credit as an underwriting tool.
SENATOR STEVENS asked if the bill precludes insurance companies
from using the tool for health insurance.
MS. WING-HEIER answered yes, in part due to do with the
guarantee of health insurance under the Affordable Care Act.
CHAIR COSTELLO observed that people with a lower credit rating
have more to gain from the bill as currently written. She asked
Ms. Wing-Heier if she has information showing that most people
have a good credit rating.
MS. WING-HEIER answered yes; most Alaskans have good credit, so
they have an advantage to get a preferred program in personal
insurance lines. She related there have been numerous instances
of people calling the division to ask why their insurance went
up 25 or 30 percent. Oftentimes it is because they failed to
sign the waiver allowing the insurance company to order their
credit history for the renewal. She said it is an oddity in the
law that insurance companies can order credit history for new
business but not on renewal unless the consumer signs the
waiver. It's an inconvenience for consumers and insurance
companies alike.
SENATOR HUGHES asked if Alaskans' generally good credit ratings
cross socioeconomic lines.
MS. WING-HEIER replied the division has found no data to support
the notion that income, gender, nationality, or race impacts
credit.
SENATOR HUGHES observed that the bill would be beneficial to all
income levels in the state.
SENATOR GARDNER asked if "no data" means that the studies that
have been done do not show that different population groups are
impacted differently, or if it means the study results are not
conclusive.
MS. WING-HEIER clarified that a Federal Trade Commission study
showed that low income consumers could have a good credit score.
She explained that when the bill was drafted the division looked
at various demographics to see if it made a difference and the
data did not support excluding rural Alaska, lower income
Alaskans, or those under age 26.
9:56:09 AM
MS. WING-HEIER continued the sectional analysis for SB 98.
Section 2
The subsection amends the notice required when an
adverse action is taken and to provide notice
informing the consumer of extraordinary life
circumstance exemptions, the process for requesting
such an exemption, and that they must request an
exemption within 60 days. The amendment also clarifies
that the notice of adverse action must be in writing.
Section 3
The subsection is amended to clarify the statute by
adding that an insurer may, in addition to credit
history, use a consumer's insurance score to cancel,
deny, nonrenew, underwrite, or rate personal insurance
only in combination with other substantive
underwriting factors.
The subsection is also amended to provide that if an
insurer uses a consumer's credit history or insurance
score, then not later than 24 months after the insurer
most recently used the consumer's credit history or
insurance score to underwrite or rate a policy, the
insurer shall reunderwrite and rerate the policy based
on the consumer's current (1) credit history or
insurance score and current risk characteristics; or
(2) risk characteristics but not including, in whole
or in part, the consumer's credit history or insurance
score.
Section 4
This section eliminates the requirement that an
insurer first obtain a written waiver at each renewal
from a consumer to underwrite or rate a personal
insurance policy based on the consumer's credit
history or insurance score. The remaining paragraphs
in the subsection are renumbered accordingly.is
amended to provide that the prohibitions on the use of
credit scores by insurers set forth in the paragraph
also apply to nonrenewals. This section also
establishes that an insurer may not use credit history
to cancel, deny, nonrenew, underwrite, or rate a
personal insurance policy if the history is obtained
more than 90 days before the policy is canceled,
denied, nonrenewed, underwritten, or rated. It further
clarifies that the paragraph does not require an
insurer to reevaluate a consumer's credit history more
frequently than is required under AS 21.36.460(c).
SENATOR HUGHES asked if the provisions in Sections 3 and 4
regarding credit history are in conflict.
MS. WING-HEIER explained that Section 3 amends the statute to
allow an insurer to use both the credit history and the
insurance score of a consumer that is not more than 24 months
old.
SENATOR HUGHES pointed out that Section 3 says the insurer may
use the credit history as one, but not the only, factor in
determining whether to deny or nonrenew, but Section 4 says an
insurer may not use credit history to cancel, deny, or nonrenew
related to a timeframe. She continued to question whether those
sections were in conflict.
10:01:23 AM
At ease
10:02:44 AM
CHAIR COSTELLO reconvened the meeting.
MS. WING-HEIER stated that the intent of Section 4 is to
establish the timeline for using credit history to cancel, deny,
nonrenew, underwrite, or rate a personal insurance policy. "You
have to use it every 24 months but within that 24 months it has
to be not more than 90 days old."
MS. WING-HEIER continued the sectional analysis for SB 98.
Section 5
Section 5 is a new section which requires (except as
provided under AS 21.36.460(d)) an insurer that uses a
consumer's credit history or insurance score to
provide reasonable exceptions to the insurer's rates,
rating classifications, company or tier placement, or
underwriting rules or guidelines for a consumer who
has experienced, and whose credit history or insurance
score has been affected by one or more of the
following extraordinary life circumstances:
· a catastrophe, as declared by the director under AS
21.06.080;
· a serious illness or injury, or a serious illness of
or injury to an immediate family member;
· the death of a spouse, child, or parent;
· divorce or the involuntary interruption of spousal
support or maintenance payments;
· identity theft;
· loss of employment for three months or more as a
result of involuntary termination;
· military overseas deployment; or
· other extraordinary life circumstances where a prudent
person would consider an exception to the insurer's
rates, rating classifications, company or tier
placement, or underwriting rules or guidelines to be
reasonable.
AS 21.36.461(b)
This subsection allows an insurer to require a
consumer requesting an exemption under 21.36.461(a) to
provide reasonable written and independently
verifiable documentation of the extraordinary life
circumstances and demonstrate that the circumstances
had a direct and meaningful effect on the consumer's
credit information.
AS 21.36.461(c)
This subsection describes situations where an insurer
may grant an exception when a consumer requests an
exception under AS 21.36.460(b).
AS 21.36.461(d)
This subsection provides that an insurer may not be
considered out of compliance with a law or rule
relating to underwriting, rating, or rate filing as a
result of granting an exception under this section.
The subsection allows an insurer to grant an exception
notwithstanding its approved filings and rates and
does not require the insurer to have to submit filing
or rate amendments to the division for approval in
order to grant the exception.
AS 21.36.461(e)
This subsection requires the insurer to provide notice
to the consumer in writing of its decision in granting
or not granting the request for an exception not later
than 30 days after the insurer receives sufficient
documentation of the information requested from the
consumer under AS 21.36.461(b).
AS 21.36.461(f)
If an exception is denied and an adverse action will
be maintained by the insurer, this subsection requires
the insurer's notice under AS 21.36.461(e) to include
the insurer's reason for denying the request for an
exception and for maintaining the adverse action and
notice of the consumer's right to appeal the denial to
the director of the division of insurance.
AS 21.36.461(g)
This subsection provides that the consumer can appeal
the adverse action to the director not later than 30
days after receiving the insurer's notice.
AS 21.36.461(h)
This subsection requires the director of the division
of insurance to make a decision on the consumer's
appeal not later than 30 days after receiving the
appeal and requires the director to provide the
decision to both the insurer and to the consumer and
outlines requirements for the basis of the decision.
AS 21.36.461(i)
This subsection provides that the hearing and appeal
procedures provided for in AS 21.06.180 -
21.06.230 do not apply to consumer appeals submitted
to the director under AS 21.36.461(g).
AS 21.36.461(j)
This subsection makes clear that nothing in AS
21.36.461 may be construed to provide a consumer with
a cause of action that does not exist in the absence
of this AS 21.36.461.
AS 21.36.461[(k)]
This subsection provides that the term "adverse
action" as used in AS 21.36.461 is limited to an
adverse action defined under AS 21.36.460(i) that is
based in whole or in part on the insured's credit
history or insurance score as affected by one or more
extraordinary life circumstances.
The subsection also provides that the term "consumer"
has the meaning given in AS 21.36.460 and the term
"director" has the meaning given in AS 21.97.900.
The subsection is amended to replace the term
"insured" with the term "consumer" for consistency.
10:06:15 AM
CHAIR COSTELLO asked what a consumer would need to do to prove
identity theft.
MS. WING-HEIER replied the first step would be to provide the
insurance company with reasonable documentation to show that
their identity was stolen. She listed LifeLock, the bank, the
credit card company, or a police report as examples of what
would suffice to meet the statutory requirement of proof.
CHAIR COSTELLO asked what the first step would be to dispute a
decision made by the insurance company.
MS. WING-HEIER replied the first step would be to go to the
insurance company to dispute the action under the extraordinary
circumstance provision. If the insurance company and the
consumer still do not agree the next step is for the consumer to
go to the Division of Insurance for a ruling.
CHAIR COSTELLO asked what the bill says about the consumer's
insurance rate during the period of dispute.
MS. WING-HEIER replied the consumer will be in the higher risk
program during the time they dispute the adverse action. Once a
favorable decision is made, the consumer would be placed back in
the program for which he/she is eligible.
SENATOR STEVENS asked how long extenuating life circumstances
might last.
MS. WING-HEIER said she did not believe the bill prevents more
than one appeal of an adverse action. Responding to a further
question, she confirmed that the insurance company would make an
annual analysis of the extraordinary circumstances.
10:10:10 AM
SENATOR HUGHES asked if the insurance company would refund the
difference between the rates if the appeal was validated.
MS. WING-HEIER said yes.
SENATOR HUGHES asked how often the appeal process is elevated to
the division director for a decision. She noted the zero fiscal
note and said she assumes that level of appeal would be rare.
MS. WING-HEIER said she believes that the insurance companies
will try to resolve the disputes at their level, but a few
appeals will rise to the level of the division director.
SENATOR GARDNER asked if consumers get a notice of adverse
action that their rates are going up because of something in
their credit history.
MS. WING-HEIER replied that is one thing the bill does. It
provides that as of January 1, 2019 an insurance company will
send an adverse action if it finds something in the consumer's
credit history that will cause their score and policy premium to
go up.
SENATOR GARDNER asked what happens if the problem is an
inaccurate credit history that is taking time to clear up.
MS. WING-HEIER said she would take that as an extenuating life
circumstance where a prudent person would consider an exception.
SENATOR GARDNER asked for clarification on the number of appeals
a consumer can make and if rates can only be adjusted annually,
even if the consumer pays monthly or quarterly.
MS. WING-HEIER said the insurance company may order the
consumer's credit history when the policy renews. Most of the
time that is annually.
CHAIR COSTELLO asked if rates for the general population would
likely go up if the bill passes because insurance companies
would need to plan for the different business model.
MS. WING-HEIER said she believes rates will stabilize or
decrease a little if the bill were to pass, even with the appeal
process.
CHAIR COSTELLO observed that accommodating extenuating life
circumstances will keep rates from dropping as much as they
might because insurance companies must take into account the
likelihood of more appeals.
MS. WING-HEIER clarified that Alaska is not the only state to
insert extenuating life circumstances in the insurance statutes.
Also, insurance company processes already include an appeal
provision. Accommodating extenuating life circumstances won't be
a large factor for increasing rates in Alaska.
SENATOR MEYER expressed concern about the additional
administrative burden the bill places on insurance companies. He
asked if it is fair to say that Section 5 is important to the
governor and that may be one of the reasons that he vetoed the
bill the legislature passed last year.
10:19:54 AM
MS. WING-HEIER clarified that the bill last year contained the
language in Section 5. The difference is that SB 98 includes the
prudent person and that the final decision maker on the validity
of the appeal is the director of the Division of Insurance.
SENATOR MEYER asked why the governor vetoed the bill last year.
MS. WING-HEIER replied it related to the adverse action. The
governor was very concerned that the insurer would tell the
consumer both that their insurance score had gone up due to an
adverse action and the result of the appeal.
CHAIR COSTELLO asked if the division is the best place to send
the final recourse action and if there was any discussion about
sending it to an existing board.
MS. WING-HEIER said they did look at other means, but the
division already has the established processes to handle the
appeals. After looking at the options, they determined it would
be more time and cost effective to handle it within the
division.
CHAIR COSTELLO asked if Section 5 is identical to the model
language from the National Conference of Insurance Legislators
(NCOIL).
MS. WING-HEIER said a lot is word-for-word but the
administration added the prudent person, the notice of adverse
action, and that the director of the Division of Insurance shall
be the final decision maker on an appeal.
CHAIR COSTELLO asked who the final decision maker is in other
states.
MS. WING-HEIER said she believes it is the insurer.
10:22:51 AM
SENATOR HUGHES asked if part of the veto last year was based on
concern that it might impact low income populations.
MS. WING-HEIER said they looked at that last year when Senator
Huggin's bill was considered.
10:23:49 AM
MS. WING-HEIER continued the sectional review for SB 98.
Section 6
This section is amended to exclude the exception appeal
process under AS 21.36.461 from the jurisdiction of
Department of Administration Office of Administrative
Hearings (OAH).
CHAIR COSTELLO found no questions and opened public testimony on
SB 98.
10:24:46 AM
CINDA SMITH, GEICO, Chevy Chase, Maryland, stated that Director
Wing-Heier has eloquently described SB 98 and Geico is fully in
support of the measure. It provides good protections for
consumers. She urged the committee to pass the bill.
10:25:27 AM
KRISTIE BABCOCK, Independent Contractor, State Farm Insurance,
Kenai, Alaska, stated that the problem in current law that she
testified to last year is still impacting her customers. She
said her customers continue to ask if they must come in every
year on every policy and sign the waiver. Sadly, when customers
don't sign the waiver their insurance rate goes up, she said.
One of her employees works exclusively on contacting customers
about when their policy will renew and reminding them they need
to sign the waiver, so they can get the best rate they deserve.
She urged the committee to pass the bill. It will allow
consumers to shop with confidence that there is stability in the
rating factors initially and upon renewal.
SENATOR HUGHES asked if she supports the changes the bill makes
this year.
MS. BABCOCK replied she does support the changes. She opined
that it makes sense that the final decision rests with the
director of insurance rather than the insurance company.
SENATOR GARDNER asked if is it too late to change a rate going
forward if a consumer doesn't notice for two months that their
rate has gone up.
MS. BABCOCK said current law prohibits the insurer from using
the consumer's credit on renewal without a signed waiver. If the
policy renews without the signed authorization, the insurer
can't use their credit characteristics after the renewal. SB 98
would allow an insurance company to use all the credit
characteristics of the customer at each renewal to correctly
classify their risk. Also, the consumer has 30 days to appeal a
rate increase based on an extenuating life circumstance.
SENATOR GARDNER asked why a consumer wouldn't just cancel their
policy if their rate goes up and the insurance company can't do
anything.
MS. BABCOCK said that does happen. The downside is that it is
irritating for the customer to have to start a new relationship.
The policy in her office, based on her interpretation of the
law, is that they cannot write a new policy for an existing
customer that covers the same thing. She deferred to Sheldon
Winters for further explanation.
SENATOR GARDNER expressed interest in knowing whether it is
state law or State Farm policy.
10:35:01 AM
ARMAND FELICIANO, Vice President, Property Casualty Insurers
Association of America, Sacramento, California, stated that PCI
is part of an insurance coalition supporting SB 98. The bill is
a reasonable middle ground that would allow consumers to enjoy
the benefits of credit scoring and put in place a fair process
to resolve credit disputes. The bill addresses the unnecessary
market disruption inherent in the existing statute and it
authorizes the division of insurance to resolve disputes.
10:35:53 AM
CHAIR COSTELLO asked Mr. Duffy to comment on Section 5 relating
to extraordinary life circumstances.
BRIAN DUFFY, Director, Division of Administrative Services,
Department of Military and Veterans Affairs, said he has no
testimony other than that including the military overseas
deployment provision is a benefit for service members and the
system in general.
10:36:51 AM
CHAIR COSTELLO found no questions and closed public testimony on
SB 98.
SENATOR GARDNER asked Ms. Wing-Heier to speak to whether it is
state law or company policy that prevents an insurer from using
credit scores after a certain amount of time has passed.
10:37:21 AM
MS. WING-HEIER said the division feels that insurers or brokers
have tried to circumvent the law by canceling a policy and
rewriting it and the division has not looked kindly if the
insurer did not get the signed waiver in the file. She said the
division has tried to be respectful of consumers who are not
happy with the existing statute while also respecting the waiver
process that is written in statute. It does not necessarily
allow an insurer to cancel a policy after it renews and then
rewriting it as new business.
CHAIR COSTELLO summarized that state law is silent as to whether
an insurance company can use the credit score once the deadline
is passed and the interpretation is that it is prohibited.
MS. WING-HEIER agreed.
CHAIR COSTELLO found no further questions and held SB 98 in
committee.