Alaska governor Bill Walker is supporting legislation allowing the use of credit scores to determine personal insurance rates, except in the case of health insurance. Walker vetoed this legislation last year, saying it did not adequately protect consumers.
Lori Wing-Heier, director of Alaska’s Division of Insurance, explained how incorporating credit information could affect consumers in the bill’s first hearing on March 28.
“The majority of Alaskans do have good credit and do have an advantage to get a preferred rate or a preferred program in personal lines insurance,” she said.
Wing-Heier’s data comes from insurance companies in Alaska, who can use credit scores to determine initial rates under current law. Alaskans must sign a waiver each year in order to include their credit score as one of the factors that determines their rate upon renewal.
“We have had more instances of people calling our office and saying they don’t understand why their insurance went up 25 or 30 percent. And sometimes it’s because they receive the form for the waiver, they were travelling, they didn’t understand the seriousness of the waiver to allow their company or their broker to order their credit history,” she explained.
Insurers and brokers called in to the hearing with similar anecdotes.
Some House Democrats opposed last year’s bill on the grounds that it could adversely affect low-income consumers, who generally have less credit history and lower credit scores.
The new bill requires insurers to notify consumers when they begin using credit scores and prohibits them from denying coverage based solely or in part on the absence of credit information.
Wing-Heier cited a 2007 study by the Federal Trade Commission (FTC) showing little to no impact on low-income consumers when credit information is used in the automobile insurance market.
That study was criticized by two FTC commissioners and consumer groups, but the head of the FTC defends its reliability. Previous studies by the Missouri and Texas Departments of Insurance found the use of credit information by insurers discriminates against low-income and minority consumers.
Wing-Heier insisted that would not be the case in Alaska.
“When this bill was being drafted…we looked at various demographics to see if it did make a difference,” she said. “Based on what we received from insurance companies we could not find where it would be a benefit to exclude rural Alaska, lower income, under 26… it did not matter.”
The legislation comes at a time when some states are seeking to limit the use of credit history by insurers. In 2016, legislation related to the subject was introduced in almost a dozen states, according to the National Conference of State Legislatures.
Some states sought to add consumer protections that Alaska’s bill already includes. Others sought to completely prohibit the use of credit information in response to complaints of discrimination and price optimization. That’s a practice in which insurers use credit information to determine price sensitivity rather than risk and charge different rates for people in the same risk level.
This year’s bill is starting off in the Senate. There is no companion bill in the House, but House Majority Leader Chris Tuck voted in favor of the bill last year.
