Billings legislator seeks to ban insurance companies from using zero-dollar claims against consumers

Jan. 06--HELENA -- Insurance companies can cancel policies or raise rates on customers based on questions asked about an incident or a claim filed even if the company never paid a dime.

Senate Bill 58 would ban companies from using information about zero-dollar claims in making underwriting decisions that ultimately affect cancellations, renewals and rates of insurance policies. The measure carried by Sen. Mary McNally, a Billings Democrat, also is supported by Republican State Auditor and Insurance Commissioner Matt Rosendale. The bill would affect a broad range of insurance policies from homeowner's and auto to commercial property and professional liability.

"Some homeowners have had their insurance canceled or not renewed for making inquiries about coverage for incidents that they, not the insurance company, ultimately pay for," McNally said while introducing the bill to the Senate Business, Labor and Economic Affairs Committee on Friday. "It's particularly ironic because most of these policies require you to make that notice. Then that information can be used against you."

She noted that "thousands" of policies were canceled in the Billings area after repeated hailstorms. Although some of those cancellations were likely based on risk calculated using claims that the company actually paid out, some were instead the result of risk assessments based on claims that the customer paid themselves and cost the insurance company nothing.

"This bill does not interfere with an insurance company's ability to cancel or not renew based on a history of excessive claims," McNally said. "It simply requires that those claims resulted in real costs to the insurer, not zero."

Bob Biskupiak, the state's deputy insurance commissioner and longtime agent, said the bill would provide "common sense" protections for consumers.

"This will provide Montana consumers with an assurance that if they comply with their insurance policies (and report incidents that might lead to a claim), they will not be penalized by their insurance companies for claims where no dollars were paid out," he said.

The tweak to state insurance regulation was first proposed in 2015 as part of a larger reform package that failed, in large part, because it also would have limited the age of claims companies could consider. That is not part of this year's bill.

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Nonetheless, lobbyists for the insurance industry testified against the bill Friday. They said that information about claims and inquiries, even if they did not result in the company spending any money, are an important part of actuarial formulas used to calculate risk.

"Companies don't pick that standard out of thin air and arbitrarily use it to decline insurance or to determine rates," said Bruce Spencer, a lobbyist for All State Insurance Company. "It's part of the secret sauce of rate making. Not every company uses the same formula. That's how they compete in terms of rates because they're doing different things slightly differently."

Along with other insurance company representatives, he said being able to accurately measure risk makes it easier for companies to set fair rates for their customers. He noted that it makes more sense for certain types of polices to weigh zero-dollar claims, such as if an attorney repeatedly calls in to say he might have committed malpractice even if no claim is ultimately paid out.

The committee requested more information about the bill and has not yet taken a vote.

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