Washington Commissioner, Insurers Debate Credit Scoring Use

January 21, 2010

Washington Insurance Commissioner Mike Kreidler is seeking to prohibit the use of credit history, education and income for rating and underwriting personal insurance — the effect of which would likely result in higher costs for consumers and less accuracy in underwriting and rating, insurers say.

Seven years ago, Washington’s Legislature restricted the use of credit scoring in insurance, prohibiting insurers from cancelling or non-renewing a customer based solely on his or her credit score. Nevertheless, most insurance companies still use credit as a key factor in setting rates, Kreidler said.

“What consumers don’t understand if they have no claims, their rates can still go up based on their credit score. … this is inherently unfair,” he said. “Especially in times like this, there are a lot of people who have lost their jobs, a lot of people had to run up their debt, may not even have health insurance and the medical debt has risen for them, all of that can negatively impact the credit score that the insurance company is using.”

Kreidler is seeking to pass HB 2513 and SB 6252 in this year’s Legislative session. He believes that this is unfair and inherently discriminatory, especially when families are already struggling due to the recent economic downturn, the Office of the Insurance Commissioner said in a statement.

Yet the Property Casualty Insurers Association of America (PCI) is testifying before the in testimony before the House Financial Institutions & Insurance Committee that credit scoring benefits consumers.

“Insurers consider credit information in their underwriting and pricing decisions for only one reason—to rate and price business with a greater degree of accuracy and certainty,” said Alex Hageli, PCI personal lines director. “The more accurately companies can price, the better they can compete, and increased competition leads to more choices and lower costs for consumers.”

Hageli highlighted numerous reputable surveys that have affirmed the strong relationship between credit-based insurance scores and risk of loss. “Legislation banning this tool would deprive insurers of one of the most predictive underwriting tools at their disposal and would likely result in substantial rate subsidization among lower risk policyholders to offset higher risks,” he said.

“Credit information is an accurate predictor of the risk of loss, and insurers need to be able to use this tool in their underwriting and rating practices to ensure individuals’ risks are properly assessed and policyholders are not paying more than they should,” added Kenton Brine, PCI assistant vice president.

To view the draft bill, visit http://www.insurance.wa.gov/legislative/oic_agenda/Z-0842.2.pdf.

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