Washington State Capitol Building in Olympia. File photo

Washington State Capitol Building in Olympia. File photo

Lawmakers consider prohibiting use of credit score to determine insurance rates

Advocates say credit scoring makes low-income and minority policy holders pay more for coverage.

Washington lawmakers are considering a bill that would prohibit insurance companies from using credit scores to determine rates or premiums for personal home and auto insurance.

During a public hearing this month, regulators, industry stakeholders and consumer advocates testified about the validity of using credit scores to determine an insurer’s risk, the implications of socio-economic inequality and the effect that quitting the practice could have on insurance customers across the state.

Senate Bill 5010’s primary sponsor, Sen. Mona Das (D-Kent), said the use of credit scores to determine the cost of insurance is “punitive” and can often have a negative impact on low-income Washingtonians and communities of color, both of which have already been disproportionately affected by the onset of the pandemic.

Das argued that being laid-off, cancelling your credit cards, or paying less on your credit bill month to month really has nothing to do with how you drive or how you care for your home — and is not a fair way for insurers to determine their risk when they open insurance policies.

“To penalize folks with increased rates or restricted access to coverage just because their credit history suffered during this challenging time is inequitable, unfair and really makes no sense,” Das said.

Another sponsor of the bill, Sen. Rebecca Saldaña (D-Seattle), said credit scores can be affected negatively by a number of factors that do not necessarily correlate with risky behavior or an insurer’s risk of loss with a particular customer.

Saldaña said she worries that after the recession caused by the pandemic more people will be adversely affected by circumstances out of their control. She admitted that it might be unclear exactly how this policy would affect insurance costs, but said she believes it will be worth the risk.

“There are fairer ways that don’t penalize someone for being poor,” she said.

Jon Noski, legislative liaison for the Office of the Insurance Commissioner, said that using credit scoring to determine cost of insurance is “inherently unfair,” as studies show that people with lower credit scores pay up to 80 percent more than those with excellent credit scores.

Additionally, he said that people with a DUI on their record and good credit pay less than someone who has a good driving record but low credit.

“Most people are not aware that their credit scores are used to determine how much they pay for insurance,” said Noski. “Insurers rely on rate setting formulas that include an individual’s credit information to determine how much they pay for critical and often mandatory insurance.”

Eric Slavich, lead property and casualty actuary at the Office of the Insurance Commissioner, said he understands why insurance companies utilize credit scores to determine rates because statistically there is a correlation between credit scores and insurance claims, but he said he feels like their use is problematic as it is a “proxy” for race.

Slavich said he thought it would be better public policy to consider factors like an individual’s driving record when determining their rates of insurance. He said consumers should be able to understand why certain factors are being used and what they can do to receive better rates.

“For example, if you get into an accident or get traffic tickets your premiums will go up, so maybe you drive a little safer,” Slavich said. “That’s good public policy since it encourages safer driving.”

But insurance agents like Tami Ellingson of Inspire Insurance Services Inc. DBA Hutson Insurance, and Piilani Benz of Alliance West Insurance Inc., said they are worried that prohibiting the use of credit scores will make all of their customers’ premiums increase, maybe even to the point of not being able to afford it.

In addition, without a way to spread the cost of insurance by targeting customers for higher and lower rates, the cost might spread among customers. Slavich estimated that about 50 percent of insurance holders would see their rates go up while 50 percent might see their rates go down.

Birny Birnbaum with the Center for Economic Justice, who has studied insurance credit scoring since the early 1990s, refuted both of these claims.

“The folks with the best credit scores are currently getting the best rates because insurers view these folks as their most valuable customers,” Birnbaum said.

Birnbaum argued that insurers would not increase the rates of their most valued customers or drive them away to other insurance companies that would happily offer them more competitive rates. He called the insurers’ claims of raised rates a “scare tactic.”

“Insurers are saying you should ignore the fundamental unfairness of credit scoring because they claim most people benefit,” Birnbaum said during his testimony.

“There is no debate that average credit scores are lower for people of color,” said Douglas Heller of the Consumer Federation of America. “Which means that unless you address this problem, the average cost of coverage is higher for people of color.”

Heller said insurers do not need to use credit history to effectively rate costs of home and auto insurance.

“We know that because we have watched insurers succeed without it,” Heller said. “In California for example, where the use of credit is banned, not only are companies profitable and insurance rates below national average, California is the second most competitive insurance market in the nation.”


Talk to us

Please share your story tips by emailing editor@kentreporter.com.

To share your opinion for publication, submit a letter through our website https://www.kentreporter.com/submit-letter/. Include your name, address and daytime phone number. (We’ll only publish your name and hometown.) Please keep letters to 300 words or less.

More in News

t
Man identified who died of medical emergency in Kent while driving car

King County Medical Examiner’s Office rules death of natural causes in 132nd Avenue SE crash

t
Man, 29, fatally shot on Metro bus in Kent identified

No charges filed against shooter who reportedly acted in self-defense

t
Aegis Living Kent earns Joint Commission memory care certification

Program designed to enhance the care of residents who suffer from memory-impacting conditions

t
New Puget Sound Fire engines to hit Kent streets | Photos

Kent will get four new vehicles for East Hill, city of SeaTac one

Maleng Regional Justice Center in Kent. FILE PHOTO
Discarded cigarette leads to arrest of Kent double homicide suspects

DNA reveals man, woman who reportedly killed two people in January 2023 at local motel

t
State Patrol chief thanks public for support of trooper shot in Kent

Trooper’s injuries are not life threatening despite being shot multiple times

t
Boy, 17, fatally shot in Kent in exchange of gunfire identified | Update

Shooting between subjects in vehicles Feb. 20 along East Valley Highway near South 180th Street

Car damaged by bullets during Feb. 19 Interstate 5 shooting. (Courtesy of Washington State Patrol)
King County Councilmember wants more info about I-5 shootings

The letter, addressed to WSP Chief John R. Batiste, comes in wake of a Feb. 19 drive-by shooting that occurred on I-5 in Tukwila that left a victim in critical condition.

t
Kent man, 83, dies after medical emergency while driving on East Hill

Reportedly died from medical issue prior to single-car crash Feb. 2o along 132nd Avenue SE

Rep. Mia Gregerson. COURTESY PHOTO, Legislative Support Services
Gregerson state bill aims to improve immigration support

Designed to better address needs of refugees, immigrants arriving in Washington state

t
Federal Way man faces charges for shooting, injuring trooper in Kent

Trooper reportedly shot nine times Feb. 16 after a struggle following foot pursuit

Courtesy image, U.S. Department of Justice
Kent man pleads guilty to selling guns to those with criminal histories

Sold more than 100 firearms to those barred from possessing guns