Kreidler wants insurance companies to ban using credit scoring to set prices

‘Unfair practice’

State Insurance Commissioner Mike Kreidler reached out to insurance company CEOs and urged them to stand behind their recent pledges to end discrimination and racial inequities by supporting his proposal to ban the unfair practice of using credit scoring in setting prices for auto, homeowner’s, renter’s and life insurance.

“Many leaders in the insurance industry have recently pledged to eliminate inequity,” Kreidler said in a July 15 news release. “My proposal is an opportunity to convert these pledges into action.

“People will feel the economic impact of the coronavirus pandemic for years to come,” he added. “It will be extremely hard for many people to improve their credit scores or even maintain their current score. They should not be penalized for circumstances that are no fault of their own.”

What we know about income and racial disparity in Washington state:

Since March 2020, more than 1.2 million people in Washington filed for unemployment. That number is 89% higher than during the peak of the great recession from 2007-2009.

In 2018, 8% of whites in Washington lived in poverty, compared to 20% of Blacks and 17% of Hispanics, according to the news release.

Kreidler is asking the Legislature to amend two state laws that allow insurance companies to help determine rates for consumers in Washington. The companies can continue to use other factors to set premiums, including age, gender, claims history, driving record, where a person lives, marital status and more.

His proposal has early support and will be sponsored by Sen. Mona Das, D- Kent, and Rep. Steve Kirby, D-Tacoma.

“Insurers believe there is a correlation between someone’s credit score and the likelihood they’ll file a claim in the future,” Kreidler said. “They believe that if you are reckless with your credit, you’ll be reckless in managing your finances and maintaining your home. But many people see their credit scores drop when they lose their jobs or suffer from a serious illness. It’s more likely the correlation has less to do with risk and more to do with your income and what wealth you’ve accumulated.”

He added, “The way insurers use your credit information is a secret. Even I don’t get to see their formula for how they use the credit data they collect. Insurers have easy access to credit scores, but the data is frequently inaccurate. They have plenty of other more accurate data they can use to price fairly.”

Kreidler has sought a ban on insurers’ use of credit scoring several times since 2001 and succeeded in limiting its use. Today, insurers cannot use your credit history to deny you coverage or cancel your policy. They are also prohibited from using certain credit factors, such as medical bankruptcy, to determine how much you pay.

“Credit scoring institutionalizes racism and holds down people with low incomes,” Kreidler said. “I believe the insurance industry leaders do not want to be on the wrong side of this issue. I think they’ll recognize that relying on such arbitrary data as credit scoring at a time our country is coming to terms with extreme economic hardship and its history of racial disparity does not enhance their corporate image.”


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