Use of Credit-Based Insurance Scores in Washington

• Washington Insurance Commissioner Mike Kreidler has issued an emergency rule that prohibits insurance companies from considering credit information in underwriting, or in setting rates for Auto, Boat, RV, Homeowners, and Renters policies.

• Consideration of credit-based insurance scores to predict the likelihood of future claims has been authorized in Washington State for more than 20 years due to its proven effectiveness to help accurately inform policy rates.

• During the 2021 Washington Legislative Session, Commissioner Kreidler requested legislation to ban this practice. Legislators rejected his proposal. The Commissioner then issued a ban by emergency rule in March, giving insurers only weeks to file new rating plans for millions of policies now in force in Washington.

• The rule requires carriers to file new rating plans that exclude the use of credit information, with new rates effective June 20, 2021 for new policies. Use of the new rates for renewals will be effective July 21, 2021.

• The rule will require customers with average to excellent credit to pay more, so as to subsidize customers with the highest likelihood of future claims. The elimination of insurance based credit scoring will actually increase the premium Mutual of Enumclaw is required to charge for a majority of our members. 

• While all of the insurance carriers will comply with the rule, we do not believe it is necessary, nor do we believe it to be in the best interest of Washington consumers. 

 What is a credit-based insurance score?

• For virtually every personal lines insurer, credit-based insurance scores are one of the most predictive variables to determine the likelihood of loss. It is calculated using the policyholder’s consumer credit history.

• Credit-based insurance scores are used by nearly every carrier because it is:

• Specific: it’s based on the individual’s personal experience

• Reliable: it’s accessed directly from established credit agencies

• Efficient: it’s readily available at point of quote

• Predictive: it delivers an incredibly high level of accuracy at predicting future losses

Is a credit-based insurance score the same as a FICO® credit score?

• No. A credit score and insurance score may seem the same, but a FICO Score is used to show lenders how likely you are to repay your debt. A credit-based insurance score is used to show insurance providers how likely you are to have a claim.  

How will this rule change impact me?

• The Washington Office of the Insurance Commissioner’s emergency rule essentially requires customers with average to excellent credit to pay more — and to subsidize customers with the highest likelihood of future claims.

• The mandatory discontinuation of credit-based insurance scores will lead to the removal of discounts for the majority of our current member’s policies at renewal. The actual impact will vary by program and policy type.

Personal Auto Homeowners

• 3 out of 5 Personal Auto customers will be charged more

• 3 out of 5 Homeowners will be charged more

• 1 out of 7 will receive an increase of over 10%

• 1 out of 4 will receive an increase of over 10%

• 1 out of 3 will receive an increase of $100 or higher

• 1 out of 4 will receive an increase of $100 or higher

Where can consumers share their concerns about the credit-based insurance score rule?

• Their elected State Representative or State Senator.

• Contact information for Washington State elected officials can be found at https://app.leg.wa.gov/districtfinder/

• Office of the Insurance Commissioner.

• https://www.insurance.wa.gov/ask-mike

• Phone: 800-562-6900

Source: Mutual of Enumclaw Insurance