State Regulation

Consumer Advocates Urge Court to Protect Washington State’s Temporary Ban on Use of Credit History in Insurance Pricing

Brief Reports on Growing Credit Crisis in Wake of Pandemic, Details How Office of Insurance Commissioner Rules Will Protect Vulnerable Insurance Consumers

Washington, D.C. — The Thurston County Superior Court should uphold a state regulation that temporarily prohibits the use of credit history in insurance pricing, according to a “Friend of the Court” (amicus) brief submitted to Thurston County Superior Court by the Consumer Federation of America (CFA), Northwest Justice Project (NJP), and Northwest Consumer Law Center (NCLC). The regulation before the Court is necessary to address the growing credit history crisis facing financially vulnerable Washingtonians in the wake of the pandemic. It was issued by the Office of Insurance Commissioner earlier this year and is being challenged by the insurance industry (APCIA, et al v. State of Washington, Thurston County Superior Court No. 22-2-00180-34).

“As the economic pain of the pandemic starts showing up on consumers’ credit scores, it’s critical that the Insurance Commissioner’s consumer protection rules take effect.” said Doug Heller, Director of Insurance for Consumer Federation of America. “So many safe drivers and responsible homeowners and renters are facing insurance premium hikes simply because the pandemic wreaked havoc on their finances and credit. That’s not fair, and as the Commissioner has rightly pointed out, it’s illegal under Washington law, which is why the Court must uphold these rules and end the insurance industry’s obstructionism.”

The Commissioner’s rule temporarily blocks insurance companies from using the credit history of customers when setting insurance premiums, in light of the impact the pandemic will have on the credit history of Washington residents, especially as relief programs and credit protection rules set up during the pandemic expire. Because the pandemic has disproportionately harmed communities of color and lower-income consumers, using credit scores at this moment will illegally amplify unfair discrimination in the state’s insurance markets.

“This temporary prohibition on the use of credit history to determine rates for private passenger automobile coverage, renter’s coverage, and homeowner’s coverage is necessary to address the unfair discrimination caused by the impact of the pandemic and related public policy responses on consumer credit histories, as well as the pandemic’s amplification of racial disparities caused by the use of credit history in insurance underwriting, pricing, and other practices,” the groups explained.

The brief details why crafting such a rule is within the Commissioner’s authority, granted by the state law that prohibits unfair discrimination in insurance markets. The brief also explains that legal services organizations, such as the Northwest Justice Project based in Seattle, are encountering a swelling number of personal bankruptcies and credit impairments stemming directly from the financial havoc wrought by the pandemic.

As one example of this growing crisis, Northwest Justice Project shared the story of a single mother, Jane Doe 1 (JD1), who lost her job in spring 2020 due to pandemic-related closures and saw her credit score decline because she had to prioritize payments. In the brief, they reported, “Almost immediately, she noticed her score decline by 74 points. Within a month, she got notice from her auto insurance carrier that her monthly rate was increasing by approximately 43% from $70 per month to $130. JD1 has never made a claim against any auto insurance policy and has a clean driving record…For JD1, already budgeting to the penny each month, the increased cost of auto insurance remains a substantial financial hardship.”

In Washington State, auto insurers have historically used consumers’ credit history to charge higher premiums to lower credit drivers, even when they had lifelong perfect driving records. CFA’s analysis of premium data charged by ten large auto insurers in every ZIP code in the state shows that consumers with excellent credit-based insurance scores and a perfect driving record pay an average statewide annual premium of $468. But if those exact same consumers have fair credit, their average annual premium increases to $633—a 35% or $165 increase. If, instead, those clean-record drivers have poor credit, their average annual premium rises to $838—a 79% or $370 increase compared to consumers with excellent credit.

A hearing in the case ­– No. 22-2-00180-34 – is scheduled for July 8, 2022 in Thurston County Superior Court.


Contacts:
Douglas Heller, CFA, 310-480-4170                                                                     
Scott Kinkley, NJP, 509-324-9128
Amanda N. Martin, NWCLC, 206-805-0989