With credit scores out, will insurers cut or hike your rate?

Lack of affordable housing squeezed buyers and drove up home prices across Snohomish County.

OLYMPIA — Washington’s insurance industry entered a new era Sunday in which it can no longer use credit scores in calculating premiums charged for home, auto and renter’s insurance policies.

It means some people will pay less and others more because use of the controversial rate-setting tool could increase or decrease premiums by hundreds of dollars, depending on the insurer and the insured.

The ban applies to new policies that take effect on or after June 20 and existing policies renewed on or after that date.

Rate changes will not happen immediately for everyone. Consumers will see them when it comes time to renew, which is tied to when they bought the policy.

Insurance Commissioner Mike Kreidler, who oversees regulation of the insurance industry, drew up the ban with an emergency rule in March. He forecast savings of up to 60% for some consumers. And to those who will face a rate hike, his advice is to “shop around” for a new insurer.

“Companies will now have to rely on risk factors that truly matter — how safely you drive and how well you maintain your property,” he said. “This is still a very competitive market in Washington. If you think you’re getting a bad deal on your policy, shop around for a better deal.”

About 1.3 million policyholders should expect rate changes, according to Kreidler’s office. How many will save versus how many will pay more is not known.

The new rating plans from insurers — which exclude credit scores — must be revenue-neutral. Firms are thus likely to balance out the assessments to sustain their level of collections.

A report issued in January by the Consumer Federation of American may give an idea of what to expect in the arena of auto insurance, which is mandatory in this state.

The group found drivers deemed safe based on their driving histories paid different amounts if their credit ratings differed. Those with poor credit paid an average of $370 more a year than a “safe” driver with excellent credit. Those with a fair credit rating paid $165 more on average.

“It is going to be highly disruptive,” said Kenton Brine, president of the Northwest Insurance Council, whose members include the largest private insurers in the state. “People that don’t know this is coming will be shocked by the rate increase,” he said, predicting hikes between 5% and 10% for “literally millions of policy holders.”

Home insurance rates could rise by a greater percentage than auto, he predicted. While insurers can obtain information on a vehicle owner’s driving habits, they don’t have access to the same kind of detailed data when it comes to property ownership.

“People will think this is the insurance industry’s doing,” he said. “This is entirely Mike Kreidler’s doing.”

Kreidler, who’s crusaded against credit score use for years, countered that nobody “put a gun to their head” and told them to continue using the policy. Nor, he said, is anyone making them raise rates.

“This isn’t being dictated to them. It’s their choice. They’ve enjoyed phenomenal profits,” he said. “There will be a period of adjustment because these companies decided to use credit scoring.”

Credit histories have been a component of setting insurance rates in Washington since at least the 1990s.

Kreidler, a Democrat and insurance commissioner since 2001, has long argued their use is discriminatory and results in people with low incomes and people of color paying more for coverage. He’s tried for a while to get lawmakers to outlaw the practice.

The pandemic added a degree of urgency to his efforts in 2021.

With federal law preventing the reporting of certain negative credit information during the pandemic, he became concerned inaccurate credit histories and unreliable credit scores were being generated for consumers. It meant people with similar credit histories could be treated differently by insurers based on whether their negative credit history occurred before or after the onset of the pandemic. For the latter group, that information was shielded from use.

This year he pressed the Legislature to act. He drew up a bill. Gov. Jay Inslee backed it. It died in the Democrat-controlled state Senate in early March.

On March 23, Kreidler issued the emergency rule, effectively achieving the ban he sought. That rule expires next month, and work is underway to get a permanent rule in place.

As now constructed, the ban is in force until three years after the state of emergency for the coronavirus pandemic is declared over, by the president or the governor — whichever is later.

Representatives of senior and consumer advocacy organizations lauded Kreidler for intervening when lawmakers failed to act. They have long argued an individual’s credit has nothing to do with whether they are a responsible driver, renter or homeowner.

Lawmakers can still make it permanent. Kreidler said he is “confident” they will do so in the 2022 legislative session.

Washington joins five states — California, Hawaii, Maryland, Michigan and Massachusetts — which bar or limit insurance companies’ use of credit scores in determining policy rates.

Insurers sued to try to block the emergency rule. But a Thurston County Superior Court judge ruled against them in April. Since then, 161 companies — 97% of the market — filed new plans to comply, according to Kreidler’s office.

They may not be done fighting, however.

“It would not be a surprise to me if they chose to take action against the permanent rule,” Kreidler said.

On the other hand, he said, insurers may realize the practice is unpopular with consumers and is targeted for elimination in other states.

“Credit scores, as a policy, is a dead man walking,” he said. “At some point insurance companies are going to figure out that they need to get out of it.”

Reporter Jerry Cornfield: jcornfield@heraldnet.com; @dospueblos

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