Washington State bans use of credit for insurance rates, industry injunction fails – Forbes Advisor
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Developments continue around the efforts of the Washington State Insurance Commissioner to prohibit insurance companies from using credit to set rates for automobiles, homeowners and cars. Tenant insurance for three years.
On March 23, 2021, Insurance Commissioner Mike Kreidler issued an order prohibiting the use of credit to set insurance rates for new and renewed policies on or after June 20, 2021.
Insurance industry groups have come together to try to stop Kriedler’s plan. The American Property Casualty Insurance Association (APCIA), the Independent Insurance Agents and Brokers of Washington and the Professional Insurance Agents of Washington filed a motion for declaratory and injunctive relief in early April in Thurston County Superior Court.
On April 23, 2021, a Superior Court judge dismissed the preliminary joinder request. Justice Mary Sue Wilson concluded that industry associations challenging the rule were unlikely to succeed with their arguments. The ruling means Kreidler’s rule of urgency stands.
“Washington consumers scored a victory today,” Kreidler said in a statement after the ruling. “The ruling essentially indicates that the multibillion-dollar industry and its associations are unlikely to prevail over their claims.”
Insurance companies in Washington will need to make new filings with the state Department of Insurance for rate structures that do not use credit for affected policies.
Review of credit-based insurance scores
Insurance companies have used credit-based insurance scores when setting rates since the 1990s. Insurers correlate credit with a customer’s chances of making an insurance claim. The lower your score, the more likely you are to file a claim, which usually results in higher insurance premiums for people with poor credit scores.
While insurers and industry groups have argued that credit insurance scores accurately predict risk, consumer groups have long argued that the scores are inherently discriminatory. For example, the Consumer Federation of America claims that the use of non-driving factors such as credit has disproportionately harmed black drivers, according to several reports between 2013 and 2020.
Kriedler issued the ban because he believes credit scores are untrustworthy and therefore should not be used as a predictive model when setting a person’s insurance rates. Various consumer protection rules implemented during the Covid-19 pandemic have created a situation where “all credit bureaus collect an objectively inaccurate credit history for some consumers and therefore results in an unreliable credit score which they is attributed ”, declares emergency rule.
For example, the federal CARES law requires financial institutions to report consumers up to date on their payments if they were not late before the pandemic. In addition, the CARES Act provided for forbearance options for certain borrowers and imposed a moratorium on foreclosures on certain home loans.
“The insurance industry’s reliance on the discriminatory practice of credit scoring has always been unfair,” Kreidler said in a statement. “But since federal protections against falling credit scores may soon end, we must take action now to protect the public.”
Kriedler said he believes the credit rating is particularly unfair to low-income people and communities of color. In Washington, good drivers with poor credit scores are charged almost 80% more for mandatory auto insurance. He had proposed a permanent ban on the use of credit-based insurance scores in Washington state, but it was not rejected by the committee by the March 9 deadline.
Other states already prohibit the use of credit in setting insurance rates. For example, California, Hawaii, Massachusetts and Michigan ban the practice car insurance rates. In other states, credit is commonly used as the main component of rates.
Industry groups say using credit saves drivers money
The APCIA argued that most consumers save money when credit-based insurance scores are used as a pricing factor, and without these tools, insurance rates could rise for more than one. million drivers in Washington.
“The commissioner’s extreme action exceeds his authority, bypasses the legislature and robs consumers of the benefits of a highly competitive market,” Claire Howard, senior vice president, general counsel and general secretary of APCIA, said in a statement. . Howard added that insurance-based credit scores are an important risk-based scoring tool that has been in place for almost 20 years.
“Insurers use specific information on the extent to which consumers are using credit as a factor in offering consumers the most affordable rate. Many other factors affect how much you pay for insurance, but not race or income, ”Howard said.
Howard also noted that a new LexisNexis report says credit-based insurance scores have remained stable during the pandemic both nationally and in Washington state, rendering Kriedler’s emergency rule unnecessary.
In addition, the National Association of Mutual Insurance Companies (NAMIC) issued a statement calling Kriedler’s action a “regulatory crisis” and threatening further lawsuits.
“Commissioner Kreidler’s emergency order is an abuse of his public office to impose a personal agenda that the state legislature already rejected earlier this year,” said Jimi Grande, senior vice president of government affairs of NAMIC. “This regulatory crisis is far beyond its authority and will increase costs for the vast majority of Washington consumers.”
“NAMIC has been willing to work with anyone to help find solutions for Washington consumers during this crisis, including legislation that would have helped consumers navigate job losses, family deaths and other extraordinary circumstances, which Commissioner Kreidler could not bother to help, but actively opposed, ”the statement continued. “In the face of this arbitrary and excessive attempt to change state laws through regulatory decree, we find ourselves with no option but to take legal action.”
Other actions to fight discrimination in insurance
The National Association of Insurance Commissioners (NAIC) has is committed to fighting racism and discrimination in the insurance industry. The NAIC has formed a special committee focused on race and insurance. One of the committee’s tasks is to determine whether there are current practices in the insurance industry that potentially disadvantage minorities.
US Senator Cory Booker (D-NJ) introduced the Auto Insurance Discrimination Act (PAYE) on September 24, 2020. The The bill seeks to eliminate non-driving discriminatory factors such as credit insurance scores, income and education levels.