Washington Insurance Commissioner Mike Kreidler’s bill to prohibit insurers from including information from consumer credit histories in the insurance scores used to calculate premiums for auto, homeowners, renters and life insurance policies is set to be taken up in Senate this week.
The proposal, Senate Bill 5010, is joint request legislation with Gov. Jay Inslee and will be heard at 8 a.m. on Thursday before the Senate Business, Financial Services & Trade Committee.
Kreidler in the summer reached out to insurance company CEOs in a letter and urged them to stand behind their recent pledges to end discrimination and racial inequities by supporting his proposal to ban the unfair practice of using credit scoring in setting prices for auto, homeowner’s, renter’s and life insurance.
Kreidler is asking the Legislature to amend two state laws that currently allow insurance companies to help determine rates for consumers in Washington. The companies can continue to use other factors to set premiums, including age, gender, where a person lives, marital status and more, he noted.
He has continued to call out the unfairness of insurers’ use of credit scoring and has requested a ban twice, first in 2001 and later in 2010 during the economic recession.
“People are struggling in ways we’ve never imagined,” said Kreidler. “We’re facing record unemployment and people are struggling to pay their bills, including their insurance premium. Insurers have relied on credit scores for too long to determine your premium. But I continue to hear stories from people across Washington who’ve been hit with rate increases they don’t understand. Even their agents can’t explain it to them, other than to say it’s their credit score.
Meanwhile, insurers continue to rely on these secret scores or formulas to shed consumers they’ve determined are undesirable.”
Insurer groups have opposed the proposal, arguing that insurers don’t use credit scores in the same way that banks, employers, landlords or others do.
Property/casualty insurers weigh specific factors from credit reports and combine those factors with other insurance-specific factors, such as driving history, previous claims or history of home rental or ownership, to determine a rate. Life insurers vary in their use of credit information as well, they say.
Insurance companies that consider credit information do so because their own actuarial experience and other studies have shown a proven connection between credit-based insurance scores and risk of loss. And, for most P/C insurance consumers, including credit information in insurance rating results in premiums that are lower than they would be if credit information was not considered, according to insurer groups opposing Kreidler on this.
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