By Jeremy Lott / The central square
(The Center Square) – Washington residents with good credit scores face sticker shock when their auto or home insurance is due for renewal.
Rates are rising because Washington’s Insurance Commissioner Mike Kreidler has banned insurance companies from using credit scores to set rates.
The policy came into effect at the end of June. Since most insurance policies are sold on an annual basis, residents experience sticker shock whenever their policies are about to renew.
Blaine resident Andy Weeda is one of the shocked. His family “had all the little perks,” which came with great credit and a good driving record, he told The Center Square.
“We were told they were all getting shot in Washington state,” Weeda said. It all comes down to “leveling the field of conduct, I guess”.
The credit rating ban was rejected by the Washington legislature earlier this year and instead was enacted by the Office of the Insurance Commissioner with an emergency rule.
The rule is supposed to be revenue neutral, which means insurance companies can’t just raise rates for those with good credit. Insurers must also lower the rates of those with poorer credit.
Kreidler argued that credit rating-based pricing unfairly penalizes people with poor credit, including minorities.
A federal trade commission report in Congress that looked into the matter found no damning evidence of racial bias in this type of insurance pricing.
On the contrary, the study found that “credit-based insurance scores are effective predictors of risk in auto policies.”
Credit scores “are predictive of the number of claims made by consumers and the total cost of those claims”, and the use of these scores in setting insurance rates is “therefore likely to better match the price of insurance at the risk of loss posed by the consumer, ”said the FTC.
The federal agency further found this to be true among demographic groups.
“Tests also showed that scores predict insurance risk among racial and ethnic minority groups (for example, Hispanics with lower scores have a higher estimated risk than Hispanics with higher scores). This effect of scores within the group is inconsistent with the theory that scores are only an approximation of race and ethnicity, ”the report states.
Kreidler’s office did not immediately return a request for comment on whether he was aware of the FTC report and its findings.
In a address At a conference hosted by Professional Insurance Agents (PIA) and Independent Insurance Agents & Brokers in Washington in September, the Insurance Commissioner denounced the influence of big data and large out-of-state insurance companies.
Kreidler denounced a “numbers driven” worldview. He protested against “reducing everyone to an algorithm that tells you, ‘Oh, that’s a good person,’ because they’re likely to give us a number that we like, ‘and that person is a bad person. ”, Whatever the circumstances in which they may find themselves.
The Insurance Commissioner admitted the credit rating: “Yes, it’s a predictor. It also has the potential to have a huge impact on the amount of resources that a business has to devote to underwriting. They don’t have to spend a lot of time looking at how they drive a car or maintain their home, because they look at certain statistics, certain numbers.
“And where does it end? Where does it stop? Kreidler asked.
PIA lobbyist Mel Sorensen, speaking at the same conference another day, underline Kreidler’s office has opposed two bills in the Legislature this year that appear to undermine his arguments.
A bill, backed by the insurance industry, would have forced insurance companies to use credit scoring only when it benefits taxpayers. The other bill would have allowed insurance companies to take life’s circumstances into account to counter bad credit.
Insurance companies have challenged and continue to challenge this rule in court. The next challenge is due to be heard in Thurston County Superior Court on Friday.