Legislature(2015 - 2016)BARNES 124
04/11/2016 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB234 | |
| Alaska Workers' Compensation Board | |
| HB271 | |
| SB127 | |
| SB142 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 234 | TELECONFERENCED | |
| += | HB 271 | TELECONFERENCED | |
| += | SB 127 | TELECONFERENCED | |
| += | SB 142 | TELECONFERENCED | |
SB 127-INSURER'S USE OF CREDIT HISTORY/SCORES
4:32:02 PM
CHAIR OLSON announced that the next order of business would be
SENATE BILL NO. 127, "An Act relating to actions by insurers
based on credit history or insurance score; and providing for an
exception to consideration by an insurer of credit history or
insurance score."
CHAIR OLSON advised the bill was heard previously and he
reopened public testimony.
4:32:48 PM
TED MONINSKI stated support for SB 127, and commented that if
credit information is used to rate personal insurance policies
at the outset, it should continue to be a factor when the policy
is renewed. This situation does not exist under current law,
and his understanding is that consumers are allowed under the
current statute to request a waiver and thereby authorize the
insurer to use credit information at renewal. However, he
discovered this is not universally true and described himself as
one of those consumers who had his good credit considered at the
time the insurance policy was first written, and when it came
time for renewal he experienced a significant premium increase
when the effect of his good credit results were stripped away as
the law currently requires. In 2013, he requested in writing, a
waiver as outlined in the current version of AS 21.36.460(d)(1),
and his insurer denied his request explaining that given the way
its rate plan was structured and approved by the Division of
Insurance, the subsection (d)(1) waiver option was not available
to him. The Division of Insurance confirmed the answer he
received from his insurer. As a result, his premiums remained
dramatically higher than would have otherwise been the case if
the waiver option had been allowed. He urged the committee to
take care to ascertain that its intent in passing this bill is
clear. Given the deference given by the Division of Insurance
to the insurer's rate plans, any ambiguity that might exist will
be resolved in the rate plan process and may or may not meet the
legislature's expectations. He also requested that the
legislature make it clear how the revised bill will be applied,
as insurers may read the bill to say that they are now free to
consider credit information at the point of renewal. If the
statutory change only applies to customers initially subscribing
after the bill is enacted, it would be an unfortunate outcome
for existing subscribers such as himself. He pointed out that
the relief in the bill should apply to all renewals regardless
of whether they are existing or new customers. It would be
fundamentally unfair to force existing customers to start over
and, thereby, give up longevity discounts and other benefits
earned over time simply to avail themselves to the relief
included in SB 127.
4:36:40 PM
CHAIR OLSON, after ascertaining no one further wished to
testify, closed public testimony.
4:37:15 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community & Economic Development, read from a prepared
statement as follows:
Over the weekend we were presented with, I believe
there were three questions that were presented by the
committee. One was: How was credit used by actuaries
which drive insurance rates? The answer is:
Actuaries use the credit-based information of
applicants and insureds much like they use any other
risk characteristics in developing rates. Using
historical loss history data, the actuary performs
statistical tests to identify which risk
characteristics of the insured are most predictive of
the observed losses, such as the risk characteristics
that best explain the observed variation in losses
amongst the policyholder in the data set. This gives
the actuaries a set of potential risk characteristics
to use as variables in the rating schemes. The
actuary then performs additional testing and modeling
and ultimately exercises professional judgment, which
is -- which is performed in compliance, not only with
the standards, but in the professional standards or
with -- with compliance of the statutes, but the
professional standards of an actuary to determine the
final rate used. Another question is: Why should
credit have anything to do with ... rating a driver's
insurance rate? They have a premium record and
accident history to assess risk. Credit-based ... and
again, this is the answer -- credit-based risk
characteristics had been repeatedly -- been repeatedly
shown to be predictive of future losses even after
considering insureds' other risk characteristics
including payment record, accident history, and many
other risk characteristics that insurers use to price
their insurance products. Indeed, insurers provide
most -- most provide data and documentation to clearly
demonstrate to the Division of Insurance that the
insurers' proposed use of credit-based risk
characteristics accurately predict insureds' future
loss potential.
4:39:44 PM
The last question was: How does -- how do actuaries
use credit and the black box? What's in the box? The
black box is generally, by statute, considered
confidential under AS 21.39. However, insurers are
required to follow their credit-based insurance
scoring models with the DOI, the Division of
Insurance, and the Division of Insurance must approve
the filing before the insurer is able to use the
credit to calculate premiums. And, in doing so they
must have the rates must be -- they must be fair, they
must be adequate, they cannot be discriminatory. I
know there were questions about red lining that were
addressed [at the 4/8/16] hearing. So, the fact that
when we talk somewhat about, on [the 4/8/16] hearing,
of red lining in credit scoring, income is not a
factor that is considered. And, when I testified on
the Senate side that question did come up, and in
credit scoring income is not a factor that is
considered. And, in fact, there have been studies
done where there has been -- looking at low-income and
credit scoring and there has not been conclusive data
to say that low- income in credit scoring, that there
is a correlation as far as insurance scores.
And, I don't know if that answered all the questions
that were presented. I believe I got them Saturday
night or Sunday morning. And, I will have those -- I
apologize, I got called to a hearing earlier today
when I was finishing my letter, but I will have this
in writing for you for the record.
4:41:32 PM
REPRESENTATIVE KITO referred to the previous testifier and asked
whether someone with an existing policy benefits from the
"automatic" use of credit for renewal.
MS. WING-HEIER responded that they should be able to benefit
from renewal. The division received an email from the previous
testifier, and looked into the division's consumer complaints
and the telephone calls it has received on credit scoring for
the past two years. She acknowledged that the division has had
[complaints] regarding the waivers, but the division could not
find where it had denied a waiver. As stated, some insurance
companies do not use the waiver at all, and some insurance
companies opt not to use it on renewal, which is their option,
because of the cost to them or the administrative burden it puts
on them. However, the only thing found that the division has
done, is that some insurance companies have perhaps stretched
the definition of waiver when it says it must be done on each
renewal; in fact, in one case an insurance company was using
what the division determined was a power of attorney - Evergreen
- and the division stopped it from doing that. The division is
enforcing the statute that says a waiver has to be used on each
renewal; however, the division is not stopping an insurance
company from using a waiver to give the consumer the benefit of
the credit score on renewal.
REPRESENTATIVE HUGHES requested clarification that under current
law the insurance company decides whether to use waivers, and
Version W will remove the requirement for a waiver. She asked
whether an insurance company could still choose not to use
credit scores, as there is nothing in the bill that obligates
insurance companies to use credit scores.
MS. WING-HEIER replied correct; it is still the option of the
insurance company to use a credit insurance score, or not, but
it would not be required to use a waiver, at all, upon renewal.
4:44:09 PM
REPRESENTATIVE JOSEPHSON asked whether Ms. Wing-Heier had
testified that she saw a study showing no correlation between
financial status and credit scores.
MS. WING-HEIER responded:
... in mid-February I was asked by Senate State
Affairs [Standing Committee], and I then submitted
back to them that in 2007, the FTC, the Federal Trade
Commission report found that the individuals
categorized as low-income did tend to have lower
insurance scores than individuals categorized as high
income, though the correlation was weaker than in the
case of race or ethnicity. Because of its inability
to analyze individual data on income, the FTC was
hesitant to reach any firm conclusions regarding the
relationship between insurance scores and income.
REPRESENTATIVE JOSEPHSON referred to a report from the State of
Missouri, Department of Insurance - that is a dozen years old -
relating to insurance-based credit scores, which concludes there
is a correlation. He said he would have to give this entire
issue further consideration, and asked Ms. Wing-Heier to repeat
her statement.
MS. WING-HEIER repeated the foregoing statement.
4:46:54 PM
REPRESENTATIVE HUGHES moved to report SB 127, Version 29-
LS0529\W out of committee with individual recommendations and
the accompanying fiscal notes. There being no objection, SB 127
was reported out of the House Labor and Commerce Standing
Committee.