Kansas Credit-Scoring Bill Would Ease Insurers' Administrative Load

The governor of Kansas is considering whether to approve a bill passed by the state legislature that would re-write some rules on the use of credit scores in evaluating insurance risk and would reduce administrative loads for property/casualty insurers.

The state legislators adopted National Conference of Insurance Legislators' model language on extraordinary life circumstances in the bill. The legislation also changes adverse action triggers, getting rid of mandatory reruns of customers' credit each three years and cutting the phrase "best possible rate" out of trigger requirements for notices. Credit checks on policy renewals will be voluntary.

In the previous session, Kansas lawmakers had considered banning the use of credit information, so insurance industry advocates made their case more vigorously this year, said Jeff Brewer, a spokesman for the Property Casualty Insurers Association of America.

Last year, NCOIL had approved an amendment to its landmark model law on credit-based insurance scoring that would require insurers using the practice to allow leeway for customers' "extraordinary life circumstances," such as policyholders finding themselves jobless, sick, divorced or deployed overseas in the military (BestWire, July 12, 2009).

This bill -- House bill 2501, which included a wider package of insurance legislation -- cleared the Senate with a unanimous vote and the House by an easy margin.

"We were really, really interested in the NCOIL language, and we thought eliminating the three-year lookback was a good idea," said Assistant Commissioner Bob Tomlinson of the Kansas Insurance Department. He said the department "had some concerns" with the adverse action changes, but the overall positives in the bill outweighed them.

"In the past, after 36 months you had to go back and re-score everyone's credit," Brewer said, a process that would become voluntary if Gov. Mark Parkinson signs the bill. Getting rid of the practice will help cut costs, "because you don't have to go through and redo all of this for all your customers," Brewer said.

The adverse action notices have also been a source of confusion for Kansas customers, he said. Under Kansas law, they have to be sent out whenever customers' credit scores don't entitle them to the very best rate available, even if they were still benefiting from lower rates. "It just causes confusion -- unnecessarily so," Brewer said.

"The companies were pleased not to have to do the lookback, and they were really pleased not to have to give the notice at every renewal," Tomlinson said. "It has some goodies for the companies in it -- that's for sure."