Legislature(2015 - 2016)BUTROVICH 205
02/11/2016 09:00 AM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB127 | |
| SB128 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 128 | TELECONFERENCED | |
| *+ | SB 127 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 127-INSURER'S USE OF CREDIT HISTORY/SCORES
9:02:28 AM
CHAIR STOLTZE announced the consideration of SB 127.
SENATOR CHARLIE HUGGINS, Alaska State Legislature, bill sponsor,
explained that SB 127 proposes that the component of credit
history be a factor in determining what an individual pays. He
revealed that Alaska is the only state that allows credit
scoring for initializing a policy, but credit scoring cannot be
used for renewal.
9:04:18 AM
LAUREN RASMUSSEN, Staff, Senator Huggins, Alaska State
Legislature, Juneau, Alaska, provided an overview of SB 127
follows:
When Alaskan consumers apply for a new auto or
homeowner's insurance policy, companies take several
variables into consideration to assess risk. A few
examples are your motor vehicle record, good student
discount, age, marital status, and credit history. Now
this is not your FICO credit score, your credit
history can look at payment history, credit
utilization, and bankruptcies. Insurers do not look at
the consumer's income, so it doesn't matter if you are
low or high income.
Under current law, credit history is included in
underwriting new policies, but must be removed, as
Senator Huggins had mentioned, when calculating a rate
for policy renewal, which usually happens about every
two years. It should be noted that consumers can elect
to include their credit history at the time of policy
renewal, but as you will hear in later testimony, this
is an extremely time consuming process and ultimately
confusing for the consumers. The process of removing
credit history often results in consumers seeing an
increase in their rates and further leads to market
disruption known as "churning," where a consumer will
go from one company to another looking for lower
rates; they in turn would not have the benefits of
long term policyholders.
SB 127 will also require insurers to make exceptions
to a consumer's rate when the consumer's credit is
adversely effected by extraordinary circumstances.
9:06:33 AM
SENATOR HUGGINS pointed out that requiring exceptions due to
extraordinary circumstances was an important consideration for
SB 127.
MS. RASMUSSEN explained that the extraordinary circumstances
clause would apply to both new insurance policies and renewal
policies, acting mostly as a safeguard for consumers. She noted
the examples of the extraordinary life circumstances were in
Sec. 3 of SB 127 and included: serious illness, injury to the
consumer or immediate family member, death of a family member,
military deployment overseas, divorce, or involuntary
unemployment.
She summarized that SB 127 simply fixes a discrepancy in the
law. She noted that Alaska was the only state to require
insurers to remove the credit history when rewriting a policy.
She added that SB 127 has no fiscal impact on the State of
Alaska.
9:08:36 AM
LAURIE WING-HEIER, Director, Division of Insurance, Alaska
Department of Commerce, Community, and Economic Development,
Juneau, Alaska, asserted that SB 127 was an emotional bill where
its intent would provide a "fix." She said her office receives
numerous phone calls from the industry and consumers. She
revealed that consumers are most often surprised when they
receive their second billing with a rate increase from an
insurance company. She noted that some rate increases were up to
100 percent. She explained that the rate increases were not due
to anything like having an accident, covering a teenage driver,
buying a car, or buying a new home. She specified that the rate
increase were due to the way that Alaska's law reads in the
application of credit score. She explained that many consumers
resort to "churning" by either going to a new insurance company
or signing a form to order their credit history and score again.
She revealed that business relationships are often destroyed due
to the rate increases.
9:10:35 AM
CHAIR STOLTZE asked if "churning" was a pejorative term for
overcharging people for fees.
MS. WING-HEIER explained that the term "churning" is the process
of consumers leaving one market for another due to pricing and
the pricing being a reflection of the use of credit scoring
because it cannot be used on renewal. She specified that
"churning" was not because of dissatisfaction with the market or
the service being received, but because a consumer cannot use
their credit scoring for the preferred rate upon product
renewal.
SENATOR HUGGINS remarked that "churning" forces consumers to
look at other agencies and the downside from the act does not
allow individuals to develop relationships with their insurance
company or agent. He specified that developed relationships
allow consumers to reap the benefits from their positive
lifestyle. He added that a provision in the bill takes
unforeseen circumstances for consumers into account too.
9:12:37 AM
MS. WING-HEIER explained that insurance agents are having their
commissions cut due to the added step of renewal because of the
law not allowing the automatic use of an individual's credit
score. She reiterated that a credit score can be used for new
business, but not for renewal.
SENATOR WIELECHOWSKI asked what the thinking was for allowing
insurance companies credit score access just for the first time
and not for renewal.
MS. WING-HEIER answered that statistics prove that the use of
credit scoring correlates to a better claims history that
ultimately leads to a lower premium on auto and homeowners
insurance.
9:14:30 AM
SENATOR MCGUIRE joined the committee meeting.
9:16:29 AM
SENATOR WIELECHOWSKI asked if lower income or wealthy
individuals have lower credit ratings.
CHAIR STOLTZE asked Senator Wielechowski to define "wealthy."
SENATOR WIELECHOWSKI replied that he would like the witness to
answer.
CHAIR STOLTZE responded that Senator Wielechowski asked the
question. He asked how Senator Wielechowski would define
"wealthy" in fairness to the witness.
SENATOR WIELECHOWSKI replied that he would use $100,000 as the
annual income that defines "wealthy."
MS. WING-HEIER explained that the credit score does not have
anything to do with income.
SENATOR WIELECHOWSKI asked if either low income or wealthy
individuals tend to have lower credit ratings.
MS. WING-HEIER answered that the data was not tracked because
income was not part of credit scoring.
9:17:57 AM
SENATOR WIELECHOWSKI explained that he was addressing the bill's
impact on his constituents. He noted that he has a lot of lower-
income constituents in his district. He asked how much more an
individual pays if they have a "poor" or "average" credit
history.
MS. WING-HEIER replied that an individual with a poor credit
history would be treated as "neutral."
SENATOR WIELECHOWSKI asked Ms. Wing-Heier to verify that an
individual with a poor credit history will be paying more than a
person with a good credit rating.
MS. WING-HEIER answered yes.
SENATOR WIELECHOWSKI asked what the rate difference was between
an individual with a poor credit rating and a good credit
rating.
MS. WING-HEIER reiterated that there was a correlation that
those with a good credit history, which is estimated to be 80
percent of the population, would receive a preferred rate. She
pointed out that the problem occurs when an individual with a
good credit history does not receive a preferred rate and pays a
higher premium at renewal. She explained that the intent was to
focus on the 80 percent that were effected during renewal. She
said the 20 percent that were never getting the preferred rate
in the first place would not effected.
SENATOR WIELECHOWSKI asked what the difference was and how much
more do the people with the preferred credit rating pay under
the way the law was currently written and how much would be
saved from the legislation.
MS. WING-HEIER answered that the rates and premiums depend on
the underwriting criteria for an individual: age, type of car,
home value, and where an individual lives.
9:20:11 AM
SENATOR HUGGINS asked how long an initial policy was typically
written for auto insurance.
MS. WING-HEIER answered six months to a year.
SENATOR HUGGINS asked how long an initial policy was written for
home insurance.
MS. WING-HEIER answered a year.
SENATOR HUGGINS explained that his constituents have asked why
credit history was used for an initial policy and not for
renewal.
9:21:56 AM
MS. WING-HEIER called attention to a recent article where
Alaska's national insurance ranking was marked down due to the
state's credit-score policy for underwriting.
9:23:59 AM
CHAIR STOLTZE commented that how much an individual makes should
not be used for underwriting insurance. He remarked that some of
the most responsible people he knows make less money.
MS. WING-HEIER reiterated that insurance companies maintain
their concern regarding the state's credit-scoring law
pertaining to renewals.
9:25:08 AM
SENATOR MCGUIRE stated that when the law was passed by Senator
Cowdery eight or nine years ago, her understanding was that
credit history could not be used as a means for deciding auto
insurance rates. She stated that she understood the notion of
unfairness when people shop insurance companies due to the
absurd result when renewing. She set forth that if the law were
applied evenly in a way that she believed she had voted on where
credit was not taken into account, there wouldn't be the
disparity at all. She asked how Ms. Wing-Heir interpreted the
law and its implementation.
9:27:07 AM
MS. WING-HEIER replied that the law as it was written was that
credit scores could be used on new business, but not on renewal.
She specified that 80 percent of new business policy holders
were given a preferred rate because of their credit score and
then their rates go up 50 to 60 percent at renewal.
SENATOR MCGUIRE replied that she did not know if allowing the
use of a person's credit rating was a political compromise. She
asked Ms. Wing-Heier to verify that the use of a credit rating
was statutory and not regulations that were interpreted. She
said Alaskans were right to be angry when entering a contract
with an insurance company and unfairly have an increase in their
rates six months to a year later. She set forth that a person
with a good driving record being penalized due to a poor credit
rating was not fair.
9:29:36 AM
MS. WING-HEIER replied that the current law applies to new
business, not renewal. She added that SB 127 addresses
extenuating life circumstances that impacts credit scores as
well.
SENATOR MCGUIRE explained that she was trying to get at the
point of what the statute said versus the regulations that were
promulgated to effectuate the statute.
MS. WING-HEIER replied that she was not aware of regulations,
strictly statutes.
CHAIR STOLTZE announced that the bill would not be moved during
the meeting and the intent was to hear the public testimony. He
said there would be time to explore statutes at the next
meeting.
9:31:07 AM
TIM MAUDSLEY, President, Alaska USA Insurance Brokers,
Anchorage, Alaska, stated that Alaska USA has submitted a letter
of support for SB 127. He specified that SB 127 would remove the
requirement for insurers to eliminate the credit-based insurance
score from the rating process after two years. He specified that
the change would provide consumers with a fair and accurate rate
on insurance renewals and eliminate confusion due to policy
cancellation and burden of changing carriers to maintain
preferred insurance rate discounts. He summarized that SB 127
would hopefully open the Alaska insurance market to additional
carriers, increase competition, and greatly benefit consumers.
He disclosed that Alaska is the only state that with a provision
that stripped credit out of renewals, a provision that deterred
additional insurance companies from entering the Alaska
insurance market.
9:34:09 AM
KRISTIE BABCOCK, Agent, State Farm Insurance, Kenai, Alaska,
remarked that SB 127 offers a solution to her customers'
difficulty with the current law affecting higher insurance rates
during renewal. She asserted that certain credit components were
a very accurate and high indicator in assessing the risk a
client presents to an insurance company. She detailed that
credit components have nothing to do with income, past
bankruptcy, or foreclosures. She specified that the credit
components pertained to certain characteristics that represented
a person's current life situation along with dozens of other
characteristics, including one's driving record. She noted that
clients have paid higher rates due to inadvertently missing a
waiver submission during the time of renewal.
9:42:09 AM
CHAIR STOLTZE pointed out that the committee had received
numerous written testimony from State Farm Insurance. He asked
if Ms. Babcock served the purpose of consolidating the testimony
of State Farm Insurance.
MS. BABCOCK answered that her comments were a good reflection of
the frustrations faced by State Farm agents and customers.
9:43:22 AM
ARMAND FELICIANO, Vice President-Government Affairs, Property
Casualty Insurers Association of America, Sacramento,
California, testified in support of SB 127.
9:44:11 AM
SENATOR HUGGINS stated that he was proud to hear Alaskans
stepping forward to address the state's insurance renewal issue.
9:44:53 AM
CINDA SMITH, Senior Counsel, GEICO Insurance, Washington, D.C.,
testified in support of SB 127.
9:46:12 AM
JEFFREY KINSEY, Actuary, State Farm Insurance, Bloomington,
Illinois, testified in support of SB 127.
9:47:06 AM
CHAIR STOLTZE closed public testimony.
SENATOR MCGUIRE asked that a question be answered at a future
committee meeting regarding the use of credit scores to assess
individual health insurance policies.
CHAIR STOLTZE commented that any discussion about the Affordable
Care Act should be on the record as well.
SENATOR MCGUIRE replied that her question does not pertain to
the Affordable Care Act and specified as follows:
The point is that each individual line of insurance is
a cost to a family unit, they are not discriminatory
in their budgeting. If credit is taken into account in
a certain couple of lines, I want to know which lines
and which lines it isn't, so just kind of a
comprehensive overview.
9:48:38 AM
SENATOR WIELECHOWSKI referenced a 2007 report by the Federal
Reserve that blacks and Hispanics have lower credit scores on
average. He said his intent was to try and figure out the impact
of SB 127 on his constituents. He noted that East Anchorage and
Bartlett are the top two most diverse high schools in the U.S.
9:49:33 AM
CHAIR STOLTZE held SB 127 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 127 Sponsor Statement.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |
| SB 127 Sectional Analysis by Sponsor.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |
| SB 127 Fiscal Note - DCCED-DOI 02-05-16.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |
| SB 127 Backup Document - Credit-Based Insurance Scores Consumer Brochure - American Insurance Association.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |
| SB 127 Support Email - Brenda Pearce 2-4-16.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |
| SB 127 Support Email - Bob McVitty 2-9-16.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |
| SB 127 Support Email - Stan Tebow 2-8-16.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |
| SB 127 Support Letter - NAMIC 1-25-16.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |
| SB 127 Support Letter - Win Fowler GEICO 2-5-16.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |
| SB 127 Support Letter - State Farm.pdf |
SSTA 2/11/2016 9:00:00 AM |
SB 127 |