The Alaska State Supreme Court has reinstated a rule barring insurers from using “frozen” credit scores in renewal decisions, overturning an appellate court decision.

The case, between the state's Department of Commerce, Community and Economic Development and the Progressive Casualty Insurance Company, involved a rule implemented by the insurance division based on state law barring the use of credit scores as a factor in the renewal decisions or underwriting at renewal.

Progressive asked regulators if they could “freeze” an insured's credit score at the initiation of the policy and use that to make underwriting risk group determinations, but the division denied the request. The Alaska State Superior Court overturned the denial on appeal, but Friday's State Supreme Court ruling will reestablish the division's ban.

Among the arguments made by Progressive, the court noted in it's decision, was that by using a “frozen” credit score, the company would not be violating the specific language of the statute that bar's insurers from “again underwriting” based on credit score, as the company would only be “maintaining” the consumer's score and not taking any affirmative action based on it.

That argument, however, “overlooks a fundamental question: For what purpose would Progressive 'maintain' a consumer's credit tier if not for underwriting?” the court said.

Furthermore, any decision to offer a consumer a renewal is inherently an underwriting decision. “It is a decision that necessarily implies the insurer has analyzed the consumer's risk of loss and found it to be acceptable,” the court said in its ruling.

“Under its proposal, even if Progressive offers to renew a consumer's policy at the same rate and underwriting risk group, it will have done so only after considering the consumer's frozen credit tier as a factor in its renewal decision,” the high court found.

The Property Casualty Insurers Association of America criticized the ruling, arguing the decision will effectively force low-risk drivers to subsidize coverage for those who present a higher risk for insurers.

“Insurers that use credit information do so for only one reason–to accurately underwrite and price policies so that the policy and price match the risk each policyholder represents,” said Kenton Brine, northwest regional manager for PCI.

Mr. Brine added, “The more accurate the tools insurers use, the more likely it is consumers will pay insurance rates that truly reflect their risk of loss–and for the 60-to-70 percent of consumers who manage their finances responsibly, the use of credit information saves them money on their home and auto insurance.”

The State Supreme Court's ruling, he added, “will lead to like risks being treated differently and people not paying the correct rate based on their risk characteristics.”