State officials will investigate the insurance industry's practice of determining insurance payments based on personal credit history.
The practice, known as "credit scoring," uses a combination of a person's driving record, claim history and credit history to produce a score. The score is used to tell how likely someone is to file a claim and sets the cost of an insurance policy.
Sen. Kim Elton, a Juneau Democrat who requested the investigation, said the practice unfairly discriminates against those with bad credit or no credit. But insurance companies contend statistical evidence shows a link between accident claims and credit history.
Elton asked the attorney general's office and the state Division of Insurance to investigate the scoring method after bills aiming to limit or end the practice stalled in the Legislature.
Elton has one of three bills - Senate Bill 286 - that seek to ban or limit credit scoring, but all are still in committee. And with less than 10 days left in the regular session, Elton said the bills aren't likely to move. He hopes the investigation will help efforts to bring the issue back next session.
"And I think the more we talk about this bill outside the Capitol, the more Alaskans are going to want to know what the answers are," Elton said.
John L. George, an insurance industry lobbyist, said an investigation will help legitimize credit scoring.
"I think a study would prove the points the industry is trying to make," George said. He noted insurance companies would not use a faulty method to raise rates that would drive away customers. George also said 80 percent of insurance customers have seen a decrease in their insurance premiums due to credit scoring.
Division of Insurance Director Robert Lohr said the investigation likely would last six months to a year and involve the review of several companies in the state.
Lohr said bills filed by lawmakers in Alaska calling for a complete ban on insurance scoring "went a little too far."
He acknowledged a correlation between credit scores and risky driving behavior are "quite good," but added the scoring method needs to be used in a way that is not unfairly discriminatory.
Lohr said credit scoring can have unintended consequences for those who might have bad or little credit but don't pose a claim risk for insurance companies. Rural Alaskans who deal in cash and have a limited credit history and women who lack a credit history after a divorce would be discriminated against unfairly by credit scoring, Lohr said.
He said the investigation likely would start with a public hearing to let insurance companies voice their concerns on regulating the practice. State officials also will look closely at laws passed in Washington and Idaho along with pending legislation in other states.
Timothy Inklebarger can be reached at firstname.lastname@example.org.
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