Washington Senate Advances Bill to Study Credit-Based Insurance Scores
Legislation progressing in the Washington State Senate could lead to a comprehensive study on the implications of using credit history and credit-based insurance scores. This study may significantly influence the future of insurance regulations within the state.
Senate Bill 5589, which successfully passed the Business, Financial Services, and Trade Committee on February 20th, is the focus of this initiative. A corresponding bill in the House of Representatives was subsequently referred to the Consumer Protection & Business Committee on January 30th.
The bill was introduced by Washington Insurance Commissioner Patty Kuderer, who has identified the measure as a priority for 2025. Prior to her current role, Kuderer served as a state senator, having been elected commissioner in November. Her agenda also includes a bill focused on policyholder restitution and efforts to boost premium setting transparency.
As outlined in the bill’s text, the study aims to evaluate how credit-based factors influence insurance premiums. It also looks to explore alternative factors that insurance companies could use in place of credit history. If enacted, the Office of the Insurance Commissioner will be required to present a preliminary report to state lawmakers by December 31st. This report must include the study’s findings, possible policy options, and relevant recommendations.
During the committee review, several amendments were proposed but ultimately rejected. One such amendment sought to narrow the study’s scope specifically to the use of credit history in setting premiums. However, Senator Perry Dozier, a Republican representing District 16, argued that this narrowed focus could hinder the completion of the study within a one-year timeframe. He highlighted the potential value of past data, suggesting that information from two years prior could provide considerable insight into the relationship between credit history and insurance costs.
Efforts to limit the use of credit-based insurance scores have been attempted previously. Former Washington Insurance Commissioner Mike Kreidler attempted, but ultimately failed, to ban the practice.
Credit-Based Insurance Scoring in the United States
The use of credit-based insurance scores in the United States has been, and continues to be, a contentious issue. Various states have adopted different regulatory approaches and are constantly considering reforms in this area. For instance, Nevada temporarily banned the use of such scores in 2020, citing the disproportionate impact of the COVID-19 pandemic on policyholders’ credit information. This ban was later upheld by the Nevada Supreme Court in February 2023.
Advocates of credit-based insurance scoring claim it offers insurance companies an effective tool for assessing the likelihood of a consumer filing claims, leading to more precise policy pricing. They also assert that consumers with strong credit histories may benefit from lower premiums, given that insurers perceive them as less likely to file claims.
Conversely, critics are concerned that credit-based insurance scores may disproportionately impact low-income individuals and minority groups, potentially resulting in higher premiums for those already facing financial challenges. The debate continues regarding whether a person’s credit history serves as a truly fair indicator of their level of insurance risk, with differing opinions on its accuracy in predicting an individual’s likelihood of filing a claim.
