Alaska insurers can't use old credit on policy renewals, SC rules

By Legal News Line | Aug 27, 2007

Justice Robert L. Eastaugh

JUNEAU -- A recent Alaska Supreme Court decision could force low-risk policyholders to subsidize homeowners and higher-risk insurees, an industry group charges. The Property Casualty Insurers Association of America (PCI) slammed the ruling last week, which it said requires insurers to re-rate all policies at first renewal without using old credit reports for comparison. In State Division of Insurance v. Progressive Casualty Insurance Co. (docket# sp-6145), the Supreme Court unanimously reversed a Superior Court decision that allowed Progressive to "freeze" credit scores at policy initiation and compare them to scores at renewal. In a news release posted last week the PCI said this ruling would remove an important piece of information that insurers use to assess risk. That could lead to "like risks being treated differently," said PCI Regional Manager Kenton Brine. But the Supreme Court instead reinstated an earlier Division of Insurance (DOI) decision, subsequently overturned by the Superior Court. The SC ruled that freezing credit rates violates state law, which pre-empts the federal Fair Credit Reporting Act (FCRA). The SC cited DOI's contention that "although the FCRA allows insurers to use credit scores to underwrite, it also allows consumers to prohibit insurers from doing so," wrote Justice Robert L. Eastaugh for the unanimous bench. "Alaska Statute...does not ban the use of credit at renewal for that purpose; it merely requires consumer consent before an insurer may do so," Justice Eastaugh added. But the PCI sees problems ahead for Alaska's insurance policy-renewers following to ruling. "The decision will lead to...people not paying the correct rate based on their risk characteristics," Brine stated.

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