Insurance commissioner issues temporary ban on using credit information for rate-setting

Commissioner previously floated the idea of banning credit scores permanently

Insurance commissioner issues temporary ban on using credit information for rate-setting

Insurance News

By Lyle Adriano

Mike Kriedler, Washington State’s insurance commissioner, has temporarily adopted a rule that bans insurers from using credit information to set auto, homeowner, and renter insurance rates. The temporary ban takes effect March 04, 2022 through three years after either the federal or state emergency declaration ends, whichever is longer.

“I’m taking this action against insurers’ use of credit scoring in response to the economic harm many people have experienced during the COVID-19 pandemic - harm that has significantly impacted people who are already financially vulnerable,” said Kreidler in a statement. “We know that now, more than ever, credit reporting is unreliable. It is unfair to base how much someone pays for frequently mandatory insurance on an unreliable and fluctuating factor like a credit score.”

During the pandemic, the federal government passed the CARES Act, which allows lenders to grant financial relief to customers. But the protections “do not apply to everyone,” a release from Kriedler’s office said, adding that once the CARES Act ends, any delinquency could be reported and/or show up as a blackout period on a customer’s credit report. This, the commissioner explained, makes credit histories the insurers are using “unreliable and inaccurate.”

“Since it is not clear when the public health emergency will end, the rule requires insurers to temporarily remove the inaccurate credit rating factor,” a statement from the Washington Office of the Insurance Commissioner (OIC) read.

The insurance commissioner previously floated the idea of banning credit scores permanently as far back as October.

Kriedler is also calling for a rule that requires insurers to provide policyholders with clear and written explanations for any rate change. This follows a previous decision, wherein the commissioner requested copies of any communication insurers used to describe the new credit rule to their customers.

Kriedler requested proof of communication after several investigations by the OIC found that, despite what they were told by their insurers, customers’ premium changes were not entirely due to the removal of credit scoring. OIC’s investigations also uncovered that in some cases, the policyholder could not determine what caused their premiums to increase.

The OIC stated that only 12 companies representing 5.2% of the affected market provided the proofs of communication.

“If an insurer wants to change how much you pay for coverage, you deserve to know why,” said Kriedler. “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’re going to help them give you one with this rule.”

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