September 10, 2007
Monday PM

Alaska's auto and home insurance consumers caught a break late last month when the Alaska Supreme Court doled out justice and didn't succumb to the 'just us' arguments of the insurance industry.

Alaska's highest court compelled the insurance industry in our state to actually follow the 2004 law a senate colleague and I authored. The law limits the use of credit scores based on secret algorithms to set insurance premiums.

The Progressive family of insurance companies wanted to flout the restrictions and their attorneys argued lawmakers and the state's division of insurance didn't understand the intent of the law that was written. Just us, they said - we know what they really meant and we know what the division should and should not do when applying the law.

The law at issue before the court mandates that credit scores cannot be used to set premiums for house or auto insurance policies when the policies are being renewed unless the consumer agrees. The consumer-protection law limits the use of credit scores when setting premiums for the initial underwriting.

For example, during initial underwriting:

• credit scores cannot be the only substantive criteria for issuing a policy or setting the premium;
• the credit score formulae must be revealed to the state's insurance director;
• consumers must be told credit ratings are being used; and
• some credit elements (like medical bills or type of credit cards used) cannot be used to establish credit scores.

But what really chapped Progressive is the new law sharply restricts use of credit scoring when policies are being renewed. The clear intent of the law is that the insurance industry, after having experience with the consumer, should base premiums and renewal on the actual driving and claim record of the consumer so they can't be financially 'punished' with a credit score (the consumer can allow use of credit scores during renewal if they think it will help move them into a lower premium tier).

Progressive's 'just us', we know what was really meant, arguments were swept away by the Alaska Supreme Court. The justices ruled the plain language of the law prohibits Progressive from using credit scores when renewing auto and home policies. "Using our independent judgment," the justices wrote, "we interpret Alaska Statutes according to reason, practicality, and common sense, taking into account the plain meaning and purpose of the law as well as the intent of the drafters."

Good on 'em. They were exactly right. Now consumers finally can be assured that credit scores that are affected by divorce, medical bills, or even religious beliefs that resist credit ("neither a borrower nor a lender be") will neither overly hamper getting insurance initially nor push them into a higher rate tier when renewing.

Received September 10, 2007 - Published September 10, 2007

About: Sen. Kim Elton (D) is a member of the Alaska State Legislature representing Juneau.

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