Insurers Urge Veto of N.Y. Credit Freeze Legislation

New York lawmakers have passed legislation designed to protect consumers against identity theft but insurers are urging Gov. George Pataki to veto the measure because its credit freeze provision does not exclude insurers.

The legislation promises to give consumers a way to prevent identity theft and protect themselves against cyber piracy, while also increasing the penalties for those who commit identity theft. The package is highlighted by legislation that would allow consumers to place a security freeze on their credit, a move meant to prevent identity thieves from causing greater damage to victims’ credit.

Senator Charles Fuschillo, chairman of the Consumer Protection Committee, sponsored the provision that would allow consumers to place a security freeze on their credit, blocking all access to consumer credit reports and preventing identity thieves from taking out new loans and credit in the name of a victim. Consumers who place a security freeze would be provided a unique personal identity number (PIN) or password that must be given to a credit reporting agency each time the consumer wants to allow access to their credit information. Supporters say that should cut off a thief’s ability to get credit, loans, and leases in the consumer’s name.

“This security freeze acts as a barricade against those who would commit fraud,” Senator Steve Saland (R-C, Poughkeepsie), co-sponsor of the legislation, said. “Identity thieves have already preyed on thousands of New York consumers, stealing personal information that leaves consumers severely at risk. This law enables consumers to avoid victimization by empowering them to place security freezes on their consumer reports.”

But the New York measure is the only credit freeze legislation passed in the nation this year that does not exempt insurers. Nine other states have passed credit freeze legislation in 2006, (Colorado, Florida, Illinois, Kentucky, Wisconsin, South Dakota, Utah, Kansas, and Vermont), and all of them allow insurers to continue to access credit information for underwriting and other legitimate business purposes, according to the Property Casualty Insurers Association of America (PCI), which has asked Gov. Pataki to veto credit freeze legislation.

PCI says including insurers in the freeze provides no benefit to consumers while incerasing costs for the industry.

“While PCI supports the effort to prevent identity theft, the application of credit freeze legislation should be tailored to address areas in which there is a prevalence of identity theft,” said Kristina Baldwin, regional manager and counsel for PCI. “The security provisions in this legislation have no practical application or consumer benefit in the context of insurance.”

According to Baldwin, it is “highly unlikely” that illegally procured credit information would be used to purchase insurance. She cites a Federal Trade Commission study in January that found that 99.6 percent of identity theft complaints were related to areas other than insurance.

“Consumers obtain little or no benefit from having a security freeze which applies to insurers. The insurer and the consumer would experience increased burdens, costs and inconveniences associated with this credit freeze legislation. It is important to bear in mind that additional insurance company burdens and costs are ultimately borne by all policyholders through higher premiums. In short, the burdens associated with applying credit freeze provisions to insurers are not outweighed by the very limited consumer benefits which would be achieved through applying credit freeze provisions to insurers,” Baldwin added.