Unfair credit ratings wreak havoc on insurance matters

Rep. Mike Cooper

An Everett couple was stunned when they were dropped by their car insurance company of 12 years even though they paid every bill on time and never had a ticket.

The problem? Their credit score dipped after they moved and the wife hadn’t yet found a new job.

More and more families are being slammed with insurance cancellations, denials or wildly inflated premiums because an insurance company got their hands on a negative credit report.

In some states it is illegal to base crucial insurance decisions on credit scores. But in Washington — where car insurance is required by law and homeowners’ insurance is required by banks — consumers are defenseless. And the problem is growing.

Horror stories are pouring into the insurance commissioner’s office:

n When a man was hospitalized for a month after being hit by a drunken driver and had trouble paying the medical bills, his family’s car insurance premiums soared as high as those of the drunken driver who hit him.

n A man laid off after last February’s earthquake closed his company’s office saw his car insurance triple from $700 to $2100 a year.

n A Bellingham woman lost her car and homeowner’s insurance after a negative credit report — because her ex-husband hadn’t paid over $4,000 in child support.

n An Edmonds couple with perfect driving records, who never missed an insurance payment, saw their premiums skyrocket after the husband suffered a severe stroke and they were bankrupted by medical bills.

Are these people worse insurance risks just because they’ve hit hard times that could happen to anyone? Of course not.

That’s why our state insurance commissioner, attorney general and governor want to protect families from insurance company misuse of credit scores in car and homeowners’ insurance.

I’m sponsoring their proposal in the House of Representatives. It would prohibit insurers from using credit history to cancel or deny policies and slap a 20 percent cap on premium hikes due to credit scores.

Many Democratic and Republican lawmakers agree these protections are urgently needed to protect the economic security of Washington’s families.

Unfortunately, insurance lobbyists are lining up to block or weaken the reforms. They claim credit history is statistically related to insurance risks, and ask why people with good credit should subsidize people with bad credit.

But the real question is: why should good drivers subsidize worse drivers who happen to have perfect credit?

In fact, many families have negative credit reports through no fault of their own.

The two leading causes of bankruptcy are job loss and medical catastrophes. These tragedies could hit nearly anyone at any time. But they don’t make people worse drivers or homeowners.

In many cases, credit scores often have nothing to do with bad finances, much less insurance risks.

A major study found that 29 percent of all credit reports have serious errors that hurt consumers and take years to correct. It isn’t fair for insurers to punish victims of credit reporting errors for someone else’s mistake.

Identify theft can also ruin credit. But insurance companies have no good answer to the identity theft victim who asked: why did my car insurance premiums nearly double because of someone else’s crime?

Many senior citizens, Hispanics and others are hurt by credit scoring simply because they avoid credit. It’s outrageous to slam people on insurance because they prefer to pay in cash, but some insurers are doing it.

Even credit inquiries can hurt your credit score. One Washington man angrily complained that while shopping for insurance his credit rating sank because of the insurers’ credit checks! "This process is very unethical," he wrote. "Also, what does my credit rating have to do with my driving habits?"

His frustration gets to the heart of the matter. Insurance availability and price should be based on real risks, not on whether you were late paying a Nordstrom’s bill.

What will happen now?

Credit scoring only became popular during the boom years of the 1990s. No one knows how many families it will hurt during the economic downturn.

Will your family suffer from an insurance decision based on a lost job or a medical crisis?

We shouldn’t wait to find out. Washington should quickly join those states that ban or sharply restrict the use of credit reports in insurance.

Rep. Mike Cooper represents the 21st Legislative District and is the Chairman of the House Financial Institutions and Insurance Committee.

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