Removing credit data from insurance plans will increase rates, critics say

Removing credit data from insurance plans will increase rates, critics say

A group of Democrat Senators have introduced a bill at the request of Governor Jay Inslee and Insurance Commissioner Mike Kreidler that would make it illegal to use a person’s credit report to set insurance policy rates. It’s a move that supporters argue will eliminate discrimination and inequity among policyholders, while insurance industry members warn that the change will all but guarantee rates will go up.

“You would see a large chunk of insurance consumers paying higher premiums if that bill were to pass,” Northwest Insurance Council President Kenton Brine said.

SB 5010, sponsored by Majority Caucus Vice Chair Mona Das (D-47) and cosponsored by 20 other Democrats, would forbid insurers to use credit scoring to calculate personal insurance rates, calling it “unfair” and saying that is has a “disproportionate economic impact on the poor” and other communities.

While some believe that credit reports shouldn’t be relevant when deciding car insurance rates, Brine noted that the data found in those reports is what’s used – not credit scores themselves.

“We’re looking at behavioral aspects in your credit report and combining them with other pieces of data,” he said. “A person’s financial history reflected in their credit history are highly predictable.”

Further, he noted that while wealthier drivers can hire attorneys to keep traffic infractions and even DUIs off of their driving records, low-income people can’t afford that. As a result, driving records aren’t as accurate a reflection of a person’s decisions.

That was the conclusion of a 2007 study by the Federal Trade Commission, which concluded that “credit-based insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums.”

Depriving insurers of credit report data would be “dummy-ing down the information the insurer has,” Brine said. “The less we know, the more we have to charge to the customers.”

SB 5010 is scheduled for a Jan. 14 public hearing in the Senate Committee on Business, Financial Services & Trade Committee.

TJ Martinell is a native Washingtonian and award-winning journalist. Born and raised in Bellevue, he’s been involved in the news industry since working at his high school newspaper.

His investigative reporting for various community newspapers in the Puget Sound region has been recognized by the Washington Newspaper Publishers Association and the Society for Professional Journalists.

A graduate of Eastern Washington University, he has a B.A. in journalism and was the news editor of EWU’s student university newspaper.

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