The Commissioners

Oregon’s Experience: Addressing credit scores, health care and disclosure

Insurance Journal’s Andrew Simpson at a recent meeting of the National Association of Insurance Commissioners. Here are additional thoughts Administrator Ario shared.

I understand that the main issue that you’re involved with through the NAIC and in Oregon is the affordability and availability of health care.
Joel Ario: That’s issue No. 1 for me, both here at the NAIC and at home in Oregon.When no insurance is available to somebody, or only high priced insurance is available, that’s the worst kind of consumer problem. Here at the NAIC, we’re holding a public hearing to talk about what kinds of options states can look at in terms of expanding the availability of insurance and keeping the price down.

We’ve seen some bold experimentation recently at the state level with Massachusetts adopting its connector and individual and employer mandate. That’s a model I think a lot of states are looking at. It’s in the nature of the 50 states to experiment in different kinds of ways. We’re the laboratories of democracy.

In Oregon, our governor has made universal coverage for children a priority. So I’m working with state Medicaid folks and others to put together a plan to make insurance available to all children in Oregon. Once we’ve figured that one out, we’ll move on to universal care. That may involve an employer mandate and an individual mandate. It’ll involve some bold experimentation to move the issue forward in the absence of significant federal action.

What is the role of the federal government in solving the health care problem?
Ario: I’d like to see the federal government do something that would provide comprehensive coverage. [But] there’s very little chance we’ll get a comprehensive solution out of Congress. The wrong way to go is … to put new restrictions on the states in their experimentation. The right way to go is for Congress to look at ways to free up the states to experiment more.

ERISA prevents us from doing many of the things we’d like to do to achieve broader pooling and better coverage. … Someday, Congress will have to come up with a comprehensive solution, but it will probably not happen until several states have pioneered the way with experiments that work. Then the federal government, as it often does, can build on successful state experiments.

One more thing I like to say is … one of the problems is that the individual consumer … needs a better understanding what the pricing of insurance and medical services are, and also what the quality is. If you go to the hospital and say, “How much will this operation or this procedure cost?” it’s very difficult to get pricing information. It’s even more difficult to look at different hospitals and determine which ones are getting the best outcomes. That information needs to be available to consumers if they’re really going to be a part of the solution.

Is that an area we’d expect states to step in and try to help consumers?
Ario: I think the states step in. And I think the industry’s stepping in. There is a lot more information for consumers than there used to be, but it’s still not enough and not the detailed pricing. It’s not the kind of information you get when you go to the grocery store, when you purchase another consumer good. I don’t think consumers are going to be able to solve this problem through consumer-driven health care completely, but that’s an aspect of the problem. The system ought to be more transparent, like other kinds of markets are.

Let’s switch gears. How do you rate the construction liability market today?
Ario: It’s improving but there are still problems. Our state economists estimated that 25 percent of Oregon’s growth is directly attributable to construction. … The housing markets are booming, but there is a problem with the availability and affordability of construction contractor insurance. We got a taskforce out of the last legislature to look at that. We’re doing two things there, which are usually what you’d do with so-called hard markets.

The first is to look at whether we can prevent the problem in the first place. In this case, the problem is construction defects, so we have building codes people involved and contractors involved, and we are looking at whether we should have better licensing systems. Should we prohibit the use of certain kinds of building materials that have caused problems in the past? Can we prevent the problem of defects in the first place?

Secondly, we are looking at whether the insurance mechanism can help to promote best practices. Can we have pricing discounts for people who engage in best contractor practices and best building practices? Then, can the insurance mechanism be more effective at pooling risk and keeping cost down?

We’ll be producing a task force report this fall, and it will go to our next legislative session starting in January 2007.

What’s been the impact of Allstate
withdrawing from earthquake coverage?

Ario: We have a very strong homeowner marketplace. I think we’re 48th in the country in rates. But whenever a major carrier pulls out of a line of insurance, like Allstate’s done with earthquake, it gives me concern because I worry other insurers are looking at the same data. So we could see a trend here. We haven’t seen it yet, but we’re looking very carefully at the market because earthquake insurance is critical in Oregon, which is on a faultline.

The other thing we’re worried about, frankly, is a tsunami off the Oregon coast. If there were an earthquake in the Pacific Ocean, a tsunami wave could come into the coast of Oregon. … So we want people to have flood insurance, because that’s the kind of insurance that would protect them in the tsunami situation. We want people to take a good hard look at earthquake insurance, too. We want to make sure it’s still available.

Could you update us on the status of credit scoring in your state?
Ario: Oregon has one of the more unique credit scoring laws in the country, which is a law that says you can use credit scoring with new business — people that you don’t know yet — to underwrite and rate them. However, once you have a customer, you know the customer and their experience, so there’s no more use of credit scoring. That has solved most of the credit scoring problems, but there are still people who don’t like it. There’s a ballot initiative that may qualify in the next month or so that would ban credit scoring entirely. I think that’s a valid public policy issue.

We’ll look forward to being a neutral arbiter, proving information that could be used by either side in that kind of debate.

There clearly are still trouble spots with credit scoring. Take something like Katrina, where suddenly people are thrown out of their homes and have a number of other economic dislocations. Is it fair to punish them with credit scoring that’s going to effect their insurance rates on a go-forward basis?

How has Oregon dealt with brokerage
compensation and disclosure?

Ario: We were able to address it by regulation. We looked at our statutes and situations where somebody could collect compensation from both the insurance company and from the purchaser. We said in those kind of situations, there ought to be an absolute disclosure obligation; disclose all of your compensation to the consumer if you’re collecting on both sides of the deal. So we shored up a couple different laws, and also passed a new regulation that requires full disclosure whenever you’re collecting on both sides of the deal.

Agents and brokers were a little concerned about other sorts of situations, but in the situation where both the consumer and the insurance company are contributing compensation, they agreed that there ought to be full disclosure.

What are your thoughts on the viability of a federal charter?

Ario: It’s a very bad idea. States are closest to the consumer. Insurance is one of those messy sort of products that involves a lot of consumer protection activity that’s best done at the state level. A federal consumer protection call center is not nearly as good as state by state protections. Also, I think the industry has a hard time with what is the real problem here. We have a booming life insurance industry. We have a booming property/casualty industry. Health insurance is the one area where maybe the federal government ought to be involved in some form or fashion. But America’s insurance system is the envy of the world and so why you’d want to up and end it all with a federal program? I just don’t get it.

But the industry is pushing for that. I think they want a deregulation program. I don’t think they are going to get that out of the Congress. … Frankly, it may not be so bad for us, because there are ways in which we need to be more coordinated, more uniform, and I think federal questions about our role push us in the right direction in that sense.

It forces more streamlining and cooperation?

Ario: I don’t know about streamlining so much as I think about coordination, and collaboration among the states.

Topics Catastrophe Oregon Construction