Washington Credit Scoring: Here We Go Again — Only Now the State AG is Involved

PIA Western Alliance Executive Vice President Kim Legato is concerned about a new, ill-conceived push to ban credit scoring in Washington State.

First it was Washington Insurance Commissioner Mike Kreidler. The commissioner twice tried to ban the use of credit scores to set insurance rates. Both attempts ended badly for the commissioner as two different Thurston County Superior Court judges said no and noted that the commissioner had overstepped his authority.

Now Washington Attorney General Bob Ferguson has stepped in and has ordered PEMCO and Progressive to provide him with information on how they use credit scoring to set rates.

In Ferguson’s statement on the issue, he said, “Washington law is clear: Unfair, deceptive, or discriminatory business practices are illegal. Significant evidence shows that using credit history to price insurance disproportionately affects people of color — even when their driving history is just as safe as white drivers. My office has a responsibility to investigate race discrimination against Washingtonians. I intend to do that.”

The two insurers consider Ferguson’s “investigation” to be a fishing expedition. It’s accusing them of breaking the law when they are actually following the law.

PIA’s Kim Legato agrees.

“The Attorney General appears to suggest that insurers who have directly complied with Washington’s statutory requirements that are specific to the use of credit-based insurance scoring, could be, at the same time, accused of violating other provisions of law,” Legato noted. “Like all businesses, insurers require a predictable regulatory environment within which to do business. It makes no sense for conduct that is lawful and approved to also be found in violation of the law.”

She added that the Washington State Insurance Code contains specific statutes authorizing insurers to use credit-based insurance scores, subject to specific limitations, and all personal auto insurance rates in the Washington State Insurance Market have been affirmatively approved by the Office of the Insurance Commissioner.

“Insurers have a right to build business plans based on specific authority contained in statutes passed by the legislature,” Legato said. “They have a right to implement those business plans consistent with rates and forms that are approved by the Office of the Insurance Commissioner.”

The American Property Casualty Insurers Association (APCIA) is also working on the case. APCIA Vice President for State Government Relations Mark Sektnan agrees with Legato. If Ferguson prevails, it could become increasingly difficult for insurers to do business in Washington State.

He said it appears the attorney general is looking for a problem that does not exist.

“Insurers are prohibited from using race as a rating factor,” he said in a statement. “Consumers benefit from the use of insurance underwriting factors that are directly predictive of losses, which make protection more affordable and available. Credit-based insurance scores have enhanced insurance availability and are demonstrated to have a direct correlation with driving behaviors such as hard-braking and hard-acceleration. Numerous studies have proven they are highly predictive.”

His news release on the issue also agrees with Legato as he notes that insurers are allowed — by law — to use credit scoring to set rates.

“The use of credit- based insurance scores is expressly allowed in statute and has been affirmed by the courts,” he said. “Multiple studies by a variety of subject matter experts and government entities have shown that credit-based insurance scoring is highly predictive of the risk of future loss resulting in the most accurate rates without discriminating based on race. The Washington Legislature has rejected legislation to ban or limit its use several times.”

Sektnan also pointed out that this decision — like that of Kreidler last year and the year before — could cause serious marketplace issues.

“All one has to do is look at the chaos in the marketplace created by Commissioner Kreidler’s attempt to ignore the law and ban the use of credit-based insurance scores,” he said. “Over a million Washington consumers, particularly seniors, were negatively impacted with higher rates created by the commissioner’s now-overturned regulations.  These same consumers could now be harmed by Attorney General Bob Ferguson’s actions.”

Sektnan said like Kreidler, Ferguson is overstepping his authority.

“The regulation of insurance is under the purview of the insurance commissioner subject to the limitations and authority enacted by the legislature,” Sektnan noted. “Contrary efforts by the attorney general will only create more confusion and chaos for Washington consumers.”