Kreidler Passes Rule Temporarily Banning Credit Scoring, Proposes Rule to Increase Transparency

February 1, 2022

OLYMPIA, Wash. — Insurance Commissioner Mike Kreidler passed his rule temporarily banning insurers from using credit information to set auto, homeowner, and renter insurance, effective March 4. In addition, it proposes a new rule of transparency requiring insurers to provide policyholders with a written explanation for any change in premium.

“I take this action against insurers’ use of credit scoring in response to the economic harm that many people have suffered during the COVID-19 pandemic – harm that has had a significant impact on people who are already financially vulnerable,” Kreidler said. “We know that now, more than ever, credit reports are unreliable. It’s unfair to base the amount someone pays for frequently required insurance on an unreliable and fluctuating factor like a credit score.”

The federal government has recognized that many people are suffering financially and passed the CARES Act which allows lenders to provide assistance to certain people in financial difficulty. However, the protections do not apply to everyone. And when the CARES Act ends, any default could then be reported or show up as a blackout period on someone’s credit report. This makes the credit history that insurers use unreliable and inaccurate. As it is unclear when the public health emergency will end, the rule requires insurers to temporarily remove the inaccurate credit score factor. The rule will be in effect from March 4 to three years after the end of federal or state emergency declarations, whichever is later.

Kreidler’s rule is designed to be rate-neutral to insurers, meaning that any rate changes are spread across all policyholders. Some will see a one-time rate increase and others a rate decrease, depending on how much reliance their insurer has relied on the credit score. Based on consumer stories he heard during the public hearing on the rule, Kreidler asked insurers to provide additional information, including:

  • An illustration called a histogram that shows the range of premium changes due to removal of credit information as a rating factor. Some insurers have already provided these illustrations as part of their rate filings.
  • Copies of all communications used by insurers to describe the new credit rule to their policyholders.

He asked for copies of the communications because several investigations conducted by the ICO on behalf of consumers revealed that despite what their insurer had told them, the change in premium was not entirely due to the removal of the credit score. . In some of the responses they received, it was nearly impossible for the insured to determine what caused their premium to increase.

Only 12 companies representing 5.2% of the relevant market provided the information requested by Kreidler.

Based on the lack of transparency and answers, Kreidler is proposing a rule that requires insurers to provide policyholders with clear written explanations for any rate changes. This proposed rule will include stakeholder participation and a public hearing.

“If an insurer wants to change your coverage amount, you deserve to know why,” Kreidler said. “And it shouldn’t be difficult to understand the reasons that led to the change. If your insurance company wants your business, you deserve an honest and clear answer. We will help them give you one with this rule.

Below is a bar chart of the average premium change for the 12 companies that responded to Kreidler’s initial request for information on the impact of removing credit as a rating factor on their policyholders:

“I understand that some people will be upset that this rule is moving forward,” Kreidler said. “They think they deserve a discount because of their good credit rating, but I have to look at fairness for all consumers in our state. is not fair.

“While this rule is in effect, I intend to work with the Legislative Assembly, stakeholders and the insurance industry to see how we can permanently end the use of credit scoring. in setting insurance premiums. It’s an outdated practice that relies on your creditworthiness instead of how you drive or treat your property. And if you think you’re more deserving of a good rate because of your ratings high credit scores, what do you say to good drivers with low credit scores who pay an average of 80% more than We need to join other states that have done this and end this discriminatory practice once and for all.

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