House Bill 47, which would disallow the use of credit information in insurance underwriting and rating, is being considered in the House State Affairs and Labor and Commerce committees. If passed, this bill (as well as companion bills HB 5 and SB 13) will have the unintended effects of reducing the level of competition in Alaska's insurance market and raising premiums for many consumers.
The use of certain credit information, in conjunction with other underwriting factors, has proven to be highly predictive of future losses. Scientific studies show time and again a correlation between credit score and the likelihood of future claims. This information is an invaluable tool in helping insurance companies choose their business and price their products appropriately. Assessing risk accurately and collecting adequate premium is critical to insurers' abilities to maintain financial stability and solvency, without which they cannot deliver on the claims promises they've made to their customers. Using effective predictors, like credit score, also allows insurers to offer lower premiums to customers who pose lower risk.
Just as with traditional underwriting criteria, insurers have the legal ability to choose how they use credit information to place business and position themselves in the marketplace. These differences between the companies are the very essence of competition, and result in greater choices for consumers.
If passed, HB 47 will competitively harm local insurance agents like myself. While I will be unable to use credit information to favorably place a policyholder at a fair price, HB 47 will not stop direct mail and phone solicitation companies - primarily out-of-state insurers - from collecting lists of consumers with high credit scores and offering policies based on that information. Driving insurance business to out-of-state companies that don't have to play by the same rules hurts Alaska's local business people and consumers.
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