March 23, 2021 – The Washington Insurance Commissioner Mike Kreidler has issued an emergency order temporarily prohibiting the use of credit history in determining premiums and eligibility for private automobile, homeowners, and renter's insurance policies. The commissioner has taken this step in light of the coronavirus pandemic and the financial effect it has had on consumers who may have lost income due to state mandated closings. The governor has issued several emergency proclamations restricting state agencies from charging late fees and penalties for a variety of debts.
The parameters of the CARES Act is such that the information credit bureaus are collecting is inaccurate for some consumers, and is therefore unreliable and a predictive tool for insurers. The commissioner finds that these protections have disrupted the credit reporting process, having negative consequences disproportionately for people of color. When the CARES Act expires a large volume of negative credit corrections will flood consumer's credit histories, and this factor has not been accounted for in current credit scoring models. This would make using existing models of credit scoring unfairly discriminatory under certain statutes.
The commissioner finds that economic impact of the pandemic has disproportionately impacted communities of color and that continued use of insurance credit scores results in excessive, inadequate or unfairly discriminatory premiums as defined in RCW 48.19.020. Therefore, for all private passenger auto, renter's, and homeowner's policies issued in the state of Washington, insurers shall not use credit history to determine rates, premiums, or eligibility for coverage. Credit history may not be used to place coverage with a particular affiliated insurer or insurer within an overage group of affiliated companies.
Insurers are to substitute any insurance credit score factor with a neutral factor. A neutral factor is a single constant factor calculated such that, when it is used instead of insurance-score-base rating factors to all policies in an insurer's book of business, the total premium for the book of business is unchanged. Insurers may, but are not required to, implement the neutral factor by peril or coverage.
These provisions apply to all new policies effective and existing policies processed for renewal on or after June 20, 2021. Insurers must submit rate filings to amend its current rating plans with the commissioner for all policies affected by this emergency order by May 6, 2021. If the application forms refer to the use of consumer credit information, amended forms must be submitted by May 6, 2021. Amendments should be limited to the changes required by this order. This rule is effective immediately. A copy of the text of this order may be found here.
Update: On April 7, 2021, the American Property Casualty Insurance Association (APCIA) issued a statement declaring that in response to this legislation they were strongly opposed to this regulation and were filing for declaratory and injunctive relief through the Superior Court in Thurston County. The action is asking the court to declare the Commissioner's action invalid and enjoin its enforcement. The text of the statement can be found here. The injunction was later denied by the court.
Update 5/14/21: While carriers opposed the regulation, as of May 13 the top ten companies providing auto insurance in Washington State have complied with the emergency order and filed new rating factors that do not use credit scores with the insurance department. The emergency rule takes effect June 20, and carriers were to file new rates by May 6. The ten carriers account for 60 percent of the market share. While industry associations claimed that meeting the filing deadlines would require complex changes and that many companies could not meet the deadline, over fifty companies have done just that.
The department has committed to completing these rate reviews within four days of receipt. The commissioner expects an even split between insureds who will see an increase or a decrease in premiums because of the emergency order removing credit scores as a rating variable.
Update 10/11/2021: On October 8 a Superior Court judge granted a narrow ruling in favor of the insurance industry's position against the commissioner's emergency rule banning credit scoring. In response, the commissioner stated that he will continue to fight to ban credit scoring and will consider his options. Washington is not the only state to ban credit scoring; California, Hawaii, Maryland, Michigan and Massachusetts either restrict or limit insurers' ability to use credit scores when rating policies.
Update 12/6/2021: A bulletin was issued today announcing that in response to comments made during the rulemaking process, the commissioner has requested insurers with over $1 million in annual premium to complete a premium impact worksheet showing insureds' premium change experiences during renewal. Companies are also being asked to provide sample wording used to notify insureds of the emergency order restricting the use of credit scoring in eligibility and rating of homeowners, renters, and automobile policies. Companies are to respond by December 20, 2021. A link to the impact worksheet can be found here. The Commissioner has stated that he won't make a final decision until he evaluates the information provided by insurers.
Update 3/31/2022: The Thurston County Supreme court granted a temporary stay of this rule on February 25, 2022. Fewer than 6% of insurers have provided the information requested by the commissioner in his December 2021 request for information on the impact of credit scoring and premiums. A further stay was issued on March 11, 2022, extending the stay until May 27 or until the matter is heard and decided, or until such time as the Court may decide further. The parties have agreed that the stay should extend through the deadline to file a notice of appeal of the final determination on the merits by the Court and if a notice of appeal is timely filed, through either issuance of the mandate by an appellate court under RAP 12.5 or entry of a final decision by The Washington State Supreme Court. A copy of the order may be found here.