Washington State Commissioner Calls for Bold Measures in Credit Scoring

December 5, 2001

Washington State Insurance Commissioner Mike Kreidler has called for bold measures to limit the use of credit scoring by the insurance industry, saying the increasingly common practice is likely hurting consumers.

According to a report in The Seattle Times, Kreidler can count on opposition from the industry, whose representatives have defended the practice as an unbiased, effective tool that is fair for consumers and lets companies write more policies than they otherwise would.

One representative for insurance agents told the House Financial Institutions and Insurance Committee that credit scoring was a mysterious “black box” that was the reason for intense frustration both for agents and customers.

Kreidler, who had input from hundreds of citizens in recent public hearings around the state, said reform was needed to decrease disparities among insurance companies and to demystify credit scoring for consumers.

Kreidler’s office polled other states and out of the 36 that responded, 13 said they have laws that limit the use of credit history.

Kreidler did not present a bill, but outlined three major elements of his proposal.

They would:

* Prohibit the right of insurance companies to cancel, deny renewal or deny coverage for home or auto insurance due to credit information.

* Restrict their right to set rates based on credit information.

* Seek additional rule-making for his office to implement the legislation and to limit the use of credit information when it conflicts with established public policy, such as causing a rise in the number of uninsured motorists.

Part of the problem, Kreidler said, is that no two credit-scoring models are identical, because insurance companies are free to put different weights on the factors.

Likewise, different companies have various attitudes about how much importance such scores should receive, even to the exclusion of traditional measuring barometers such as a consumer’s driving history and accident record.

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