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Legal action possible over insurance commissioner’s three-year ban on credit score use for insurance plans

Legal action possible over insurance commissioner’s three-year ban on credit score use for insurance plans

In a move that has industry associations calling foul and evaluating possible legal action, Insurance Commissioner Mike Kreidler has issued an “emergency rule”  instituting a ban on the use of credit score reports for personal property insurance rates for the next three years.

Kreidler advocated this legislative session such for a ban on the use of credit reports to set insurance rates, and a measure sponsored by Majority Caucus Vice Chair Mona Das (D-47) proposed to do so via SB 5010 but failed to advance in the legislature this session following a Jan. 14 public hearing.

In a joint statement, the American Property Casualty Insurance Association, National Association of Mutual Insurance Companies, and Northwest Insurance Council said the organizations “will aggressively pursue all legal avenues to redress this abuse of authority.”

Additionally, it is the associations’ position that the directive “circumvent(s) the Washington Legislature by taking an action the Legislature recently rejected. These actions exceed the statutory authority of the Commissioner, violate the separation of powers between the executive and legislative branches of government, and could be in direct conflict with the existing statutes that regulate, but clearly allow, credit information to be considered by insurers.”

In his emergency rule, Kreidler argues that the decision is necessary in response to the recently-enacted federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. “The result of the CARES Act is that all credit bureaus are collecting a credit history that is objectively inaccurate for some consumers and therefore results in an unreliable credit score being assigned to them. Consequently, this untrustworthy credit score degrades any predicative value that may be found in a consumer’s credit-based insurance score.”

“When the CARES Act fully expires, a large volume of negative credit corrections will flood consumer credit histories. This flood of negative credit history has not been accounted for in the current credit scoring models,” he wrote further.

The decision was praised by Consumer Reports Advocacy Programs Director Chuck Bell, who said in a statement that “your credit score has nothing to do with whether you are a responsible driver, renter or homeowner and shouldn’t impact how much you pay to insure your property.”

However, insurers have noted that credit scores aren’t actually used, but the data found within the reports. A 2007 study by the Federal Trade Commission found that “credit-based insurance scores are effective predictors of risk under automobile policies,” whereas driving records aren’t as predictive because of how wealthier drivers can hire lawyers to avoid tickets.

The joint statement by industry, however, says that “In the end, it is Washington consumers who will suffer, at the very worst time for the state’s economy and family budgets.”

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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