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TOPEKA, Kan. (BestWire) - The Kansas Insurance Department has been
getting a number of consumer complaints since its credit-based insurance
scoring regulation took effect at the beginning of the year, and the
department plans to issue a bulletin to help insurers comply, said the
state's insurance commissioner.
The department has heard from consumers who have received letters
stating an adverse action was taken against them because of a credit
score, with no other reason for the adverse action stated in the letter,
said Kansas Insurance Commissioner Sandy Praeger. "In Kansas, if it
lists only an adverse action based on credit, it violates our act,"
Praeger said. "There has to be another factor for raising premium or
moving someone from one rating category to another." The insurance
department felt the need to give guidance to insurers on the intent of
the state's insurance-scoring law, which the department's regulation is
based on. "We believe it was legislative intent that there needed to be
more than one factor before there could be an adverse action taken, and
they have to state what those factors are," Praeger said.
Insurers and trade associations held a meeting Sept. 17 to get their
input into a bulletin to offer guidance. "We felt the bulletin would
assist companies in terms of interpretation of the law and what we
expect," Praeger said. "It's intended to help them comply."
To show how the department is trying to help insurers, Praeger said her
department hasn't turned in any of the consumer complaints to the
National Association of Insurance Commissioners. "We know the regulation
is new," she said. "Some of it is a matter of how they have their
automatic computer systems set up."
But the National Association of Mutual Insurance Companies objects to
the insurance department regulation and the bulletin, seeing both as
running counter to the Kansas Insurance Score Act, one of 20 state laws
on insurance scoring that were patterned after a model law developed by
the National Conference of Insurance Legislators, according to NAMIC.
NAMIC's greatest concern with the proposed bulletin is the department's
interpretation of "sole use," which, according to NAMIC, asserts that
individuals with the worst credit history are entitled to the same
treatment as individuals with the best credit history unless there is a
non-credit related reason to take an adverse action.
"The draft bulletin includes an interpretation of 'sole use' vastly
different from what was intended by NCOIL," said Joe Thesing, NAMIC's
central region state affairs manager. Thesing also said the state
attorney general issued an opinion saying the insurance department's
interpretation of 'sole use' would alter the language in the state's
law, and that the department's interpretation is "inconsistent with the
official position of the NAIC Credit Scoring Working Group."
The Kansas department started with the NCOIL model and its meaning of
"solely" as it looked at developing its regulation based on the Kansas
insurance-scoring law, Praeger said. "We determined that just looking at
other factors, and not having those other factors change was not
enough," she said.
NCOIL has explained its meaning of "sole use" in its model, stating that
credit can be a primary factor in underwriting, but other factors have
to be considered, said Candace Thorson, NCOIL's director of legislative
affairs and education. Legislators were concerned that some smaller
insurers may use credit as the only factor, she said. Legislators didn't
think this was fair, though they also didn't think insurers relying
solely on credit information represented a huge percentage of the
industry.
The explanation was provided to the NAIC because NCOIL was aware that a
number of regulators weren't fond of the NCOIL model, Thorson said.
NCOIL also clarified that it sees insurers' use of "minimum thresholds"
as a violation of its model, Thorson said. For example, if an insurer
decided that anyone with a credit-based insurance score of 500 or below
wouldn't be written a policy or would be put into a substandard tier,
legislators found that this would indeed be a case of credit being a
sole factor.
The insurance department regulation also has other safeguards, Praeger
said. A credit-based insurance score can'[t be low because of medical
debt, for example. She also noted that some of the problems consumers
with good credit were having didn't involve the insurer, but the credit
reporting agency, which had incorrect information.
A date for issuing the bulletin hasn't been set, but Praeger noted that
while the department doesn't have the authority to change the state law,
it does have the authority to interpret it. "If insurers don't like the
department's interpretation of legislative intent, they can go back to
the Legislature to get it clarified," she said. "We will do what the
Legislature tells us, but this is how we interpret it."
(By Dennis Kelly, senior associate
editor, BestWeek: Dennis.Kelly@ambest.com) |