A ruling by the Alaska State Supreme Court requiring insurers to re-rate all policies at the very first renewal as if credit information was never considered will have the unintended result of forcing good insurance risks to pay more – to subsidize higher risk drivers and homeowners, according to the Property Casualty Insurers Association of America (PCI).
In Alaska Dept. of Commerce, Community & Economic Development, Division of Insurance v. Progressive Casualty Insurance Co., the state’s highest court reversed a lower court decision and affirmed the Division of Insurance’s interpretation of Alaska’s credit scoring law.
Alaska law currently allows insurers to consider credit information in rating and underwriting decisions on new policies, but forbids insurers from failing to renew, or at renewal, underwriting or rating a personal insurance policy, based in whole or in part on a consumer’s credit history or insurance score.
In DOI v. Progressive, insurers argued that the statute allowed insurers to consider existing credit information along with other traditional rating and underwriting factors at renewal, so long as a new or updated credit report was not ordered by the insurer (unless permission to do so was offered by the policyholder). The Third District Superior Court ruled against the Insurance Division’s “strip out credit on renewal” interpretation last year, siding with insurers’ interpretation of the statute.
“Insurers that use credit information do so for only one reason — to accurately underwrite and price policies so that the policy and price match the risk each policyholder represents. The more accurate the tools insurers use, the more likely it is consumers will pay insurance rates that truly reflect their risk of loss– and for the 60 to 70 percent of consumers who manage their finances responsibly, the use of credit information saves them money on their home and auto insurance,” said PCI NW Regional Manager Kenton Brine. “The decision will lead to like risks being treated differently and people not paying the correct rate based on their risk characteristics.”
However, the Supreme Court rejected that argument, noting that Progressive’s continued use of credit scores at renewal would violate state statute prohibiting such conduct. The court said the DOI correctly interpreted state law and legislative history in prohibiting Progressive’s proposal.
Sources: Alaska Supreme Court, PCI
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