Washington Insurance Commissioner Issues Credit Scoring Ban

Washington State Insurance Commissioner Mike Kreidler has enacted a rule prohibiting insurers from using credit checks to determine rates for auto, homeowners and renters insurance for three years after the end of pandemic-related federal and state emergency financial protection to use, whichever is longer.

The rule, announced Tuesday, takes effect March 4 and comes nearly a year after Kreidler issued an emergency rule banning the practice. Kreidler said he was also proposing a new rule that would require insurers to provide policyholders with a written explanation of any premium change.

“We know that credit reports are now more unreliable than ever,” Democrat Kreidler said in a written statement. “It’s unfair to base the amount someone pays for often mandatory insurance on an unreliable and fluctuating factor like creditworthiness.”

Kreidler said that after federal pandemic protection ends, people who have struggled financially for the past two years are at risk of late payments showing up on their credit reports.

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He found that insurers charge good drivers with poor credit nearly 80% more for mandatory auto insurance.

Republicans condemned the move, saying it would incur additional costs for people on fixed incomes, such as the elderly, who have benefited from reduced insurance rates because of their good credit.

“They are now being put in an untenable position where they are not making an increased income and are seeing interest rates go up by hundreds of dollars,” Republican Senator John Braun said.

Two other states do not allow credit ratings for both homeowners and auto insurance rates: California, which passed a voting measure in 1988, and Massachusetts. Maryland allows credit scoring to determine auto insurance rates but not homeowners, and Hawaii allows credit scoring for homeowners insurance but not autos.

Kreidler said he plans to use the time while the ban is in effect to work with lawmakers, consumer groups and the insurance industry to permanently end the use of credit scoring in setting insurance premiums.

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