The adoption last week by Washington state Insurance Commissioner Mike Kreidler of a rule prohibiting insurers from using credit scoring to set rates for auto, homeowner, and renter insurance has already sparked a legal challenge from insurer groups.
The American Property Casualty Insurance Association, the Professional Insurance Agents of Washington, and the Independent Insurance Agents and Brokers of Washington filed two legal actions on Wednesday — an administrative challenge and a superior court lawsuit — to stop the rule, which is set to go into effect on March 4 and last for three years after the end of pandemic-related federal and state emergency financial protections, whichever comes first.
“The Commissioner’s extreme action exceeds his authority, circumvents the legislature, and deprives consumers of the benefits of a highly competitive private market,” said Claire Howard, senior vice president of the American Property Casualty Insurance Association, in a written statement Thursday.
Kreidler’s office began the process of implementing the permanent rule, which was announced last Tuesday, after a court overturned an emergency rule issued by the commissioner last year, ruling that there was no justification to bypass normal rulemaking procedures.
According to Kreidler spokeswoman Stephanie Marquis, the office believes that “this rule is within the Commissioner’s statutory authority to adopt and is the best option for Washington consumers.”
Kreidler also stated that he is proposing a new rule requiring insurers to provide policyholders with a written explanation for any premium change.
He stated that once federal pandemic protections expire, people who have struggled financially in the last two years are at risk of having delinquencies appear on their credit reports, and that insurers charge good drivers with low credit scores nearly 80% more for mandatory auto insurance.
Republicans and insurers have slammed the decision, claiming that it will raise costs for people on fixed incomes, such as the elderly, who have benefited from lower insurance rates due to their good credit scores.
“Commissioner Kreidler’s rule prohibiting insurers from using credit-based insurance scores will continue to destabilize the Washington insurance market and raise rates for over one million consumers,” Howard wrote.
Gov. Jay Inslee expressed his support for the insurance commissioner’s efforts.
“I just don’t think it’s fair to punish good drivers if they’ve had some credit difficulties,” he said at his weekly news conference with Capitol reporters.
California, which passed a ballot measure in 1988, and Massachusetts are the only other states that do not allow credit scoring for both homeowners and auto insurance rates. Maryland allows credit scoring to be used to determine auto insurance rates but not homeowners insurance rates, and Hawaii allows credit scoring to be used to determine homeowner’s insurance rates but not auto insurance rates.
Kreidler has stated that he intends to use the time the ban is in effect to work with the Legislature, consumer groups, and the insurance industry to permanently end the use of credit scoring in determining insurance premiums.