OIC calls for ban on using credit scores to determine insurance premiums

Washington’s Office of the Insurance Commissioner (OIC) has requested legislation this year to ban the use of credit scores by the insurance industry to set premiums for homeowner, auto, renter, and boat insurance. Insurance Commissioner Mike Kreidler has requested a credit score ban twice – once in 2001 and again in 2010 during the economic recession. This year’s legislation, SB 5010, is sponsored by Sen. Mona Das.

 

 

Kreidler says with the economic struggles related to the COVID-19 pandemic, this ban is critical. The bill is also necessary, he says, to help promote racial and economic justice in the insurance industry.

“The reason for this change in state law is simple: The use of credit-based insurance scores has historically and disproportionately penalized communities of color and low-income communities through inequities embedded in our credit system,” says the OIC.

During the bill’s recent public hearing in the Senate Business, Financial Services & Trade Committee, Jon Noski, legislative liaison for the OIC, told lawmakers that studies show that drivers in Washington with lower credit scores pay nearly 80% more than those with excellent credit scores.

And, according to a 2015 Consumer Federation of America report, drivers with good credit scores paid $214 more than drivers with the best credit score.

“The study also found that in Washington state, drivers with excellent credit and a conviction for driving under the influence (DUI) paid $847 less in premiums than a driver with a clean driving record and poor credit,” says the OIC.

The committee also heard testimony in favor of the bill from representatives from the Center for Economic Justice, the Consumer Federation of America, the Statewide Poverty Action Network, and AARP Washington State.

Several individuals representing the insurance industry testified in opposition to SB 5010.

Tony Cotto, with the National Association of Mutual Insurance Companies, told lawmakers that insurance scores deal with objective facts, rather than subjective judgements. He says data like bankruptcies and history of late payments go into insurance scores, but information such as race and national origin are not included.

“A score tells me nothing about an applicant or policyholder’s race. In the same vein, a score tells me nothing about an applicant’s income or wealth. Insurance scores tell me about behavior patterns and how someone manages the credit that has been extended to them,” he said.

He says that prohibiting their use will harm small insurers and result in higher rates for all insureds across the state.

According to Chair Sen. Mark Mullet, 22 individuals signed up to testify on the bill, with 13 in support and 9 against.

The bill has not been scheduled for executive action.