Court overturns Washington's credit ban in insurance quoting

Washington insurers may continue credit-based rating practices after Superior Court Judge Mary Sue Wilson granted summary judgment on Oct. 8 to invalidate Insurance Commissioner Mike Kreidler’s emergency ban of credit history in quoting personal lines insurance policies.

Kreidler’s March 2021 order prohibited insurers from using credit scoring to set rates for personal auto, home and renters insurance for three years due to provisions in the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, which impacted credit information. The order stated that consumer protections provided by the CARES Act resulted in incorrect information recorded by credit bureaus for some consumers, making them unreliable as a predictive tool for insurers.

“I’m disappointed by today’s ruling,” Kreidler said in a statement. ”I have authority to take continuing action to protect consumers from the insurance industry’s unjust, secretive and unrealistic method to determine what consumers pay to insure their vehicles and homes.”

However, at least one industry group disagrees. Claire Howard, senior vice president, general counsel, and corporate secretary at the American Property Casualty Insurance Association, said in a release: ”This emergency rule has been stopped because there was no emergency regarding the use of credit history. However, the commissioner’s permanent rulemaking process to adopt a rule banning credit history for three years continues. We believe the commissioner lacks the authority to ban credit history because two preexisting statutes in Washington explicitly authorize insurers to use it, and he has no power to overturn or suspend statutes.”

Credit-based scoring has been at the center of contention in the insurance industry in recent years. Industry groups argue the need for insurers to use credit scoring as an essential risk-based rating tool; however, consumer groups believe using credit factors in insurance is discriminatory and negatively impacts minority communities.

During a 2020 U.S. House Financial Service’s Subcommittee hearing, Erin Collins, vice president of state affairs for NAMIC, spoke about the necessity of using credit factors in insurance rating to predict future losses, as “prior claims alone do not provide enough information to serve as an adequate predictor of future risk.”

Related: 

• Root Insurance vows to remove credit factors from policy ratings
• 5 factors that determine a credit-based insurance score
• 11 states where credit score affects car insurance the most