Washington Insurance Credit Ban
Last Update: May 10, 2021
Insurance Commissioner Mike Kreidler issued an order on March 23, 2021, that bans the use of credit in setting insurance rates for new and renewing policies as of June 20, 2021. That credit-ban applies to rates for auto, homeowners and renters insurance for three years. On April 23, 2021, a Superior Court judge denied the request for a preliminary junction. The ruling means that Kreidler’s emergency rule is to be enforced.
Therefore, insurance companies in Washington will have to make new filings with the state insurance department ASAP for rate structures that don’t use credit for the affected policies.
In my thirteen years of owning an insurance agency, no change has been as significant and this quick to be implemented. To put things in perspective, insurance companies sometimes wait over one year to have their proposed rate changes approved by the state, and that is after they spent years analyzing what premiums to charge. In the past days, I have spoken to a few insurance companies and all of them are scrambling to figure out how to best handle this credit ban.
Why is there a Credit Ban?
Insurance companies have used credit-based insurance scores when setting rates for nearly thirty years. Even though insurance agencies and agents don’t know what a client’s score is, we usually have a basic idea if the final premium was heavily influenced by credit.
To use an arbitrary example, let’s say the base premium (the premium before any rating factors are applied) is $1,000 for an auto policy. Insurance based credit alone, could create a premium range of $600 (best credit) and $1,500 (worst credit).
While insurance companies and industry groups have shown that credit-based insurance scores accurately predict risk, consumer advocacy groups have long argued that the scores are innately discriminatory. For example, the Consumer Federation of America says the use of non-driving factors such as credit have disproportionately harmed Black drivers, according to several reports between 2013 and 2020.
Why is Washington State doing this now?
Frequently Asked Questions
What is credit scoring?
Currently, insurance companies are allowed to use credit information when deciding whether or not to offer someone insurance and to calculate how much to charge them.
When will the new ban go into effect?
June 20th, 2021
Is the ruling final?
All indications are that the ban will remain as is.
Do all insurance companies have to comply to this rule?
Will my rate change on June 20th?The credit ban will have an impact on your rate once your policy renews after June 19th, 2021.
I have an excellent credit score. How likely is it that my premium will go up?
Assuming that nothing else changed (discounts, tickets, accidents), and that your credit was excellent the last time your policy was rated, it is very likely that your premium will go up. How much is impossible to know at this point.
My credit is bad. Will this mean that my car insurance will be cheaper?
Assuming that nothing else changed (discounts, tickets, accidents), and that your credit was poor the last time your policy was rated, it is very likely that your premium will go down. How much is impossible to know at this point.
My credit is average. What will happen to my premium?
We are guessing that average credit scores will be the mean insurance rate for the foreseeable future, meaning that you will most likely see the smallest change due to this new ruling.
I don’t have any credit. Will my rate change?
Good question. Each insurance company handles situations where client does not have any credit score differently. If a no-score was heavily surcharged, you might see a decrease in premium.
Is Washington State the only one doing this?
In fact, other states, including California, Massachusetts, Michigan, and Hawaii have banned credit based premium scoring for many years.