On April 6, the American Property Casualty Insurance Association filed for an injunction against emergency regulations recently filed by Washington Insurance Commissioner Mike Kreidler. The association is adamant that Kreidler exceeded his authority when he promulgated emergency rules immediately banning insurers from using credit-based scores in rating and underwriting personal lines policies.

The petition for injunctive relief was filed in Superior Court in Thurston County. It asks the court to declare the commissioner’s action invalid and enjoin its enforcement. A hearing on the legal action scheduled for April 16 was rescheduled for April 23.

On March 22, Kreidler issued an emergency rule prohibiting insurers from using credit history in determining insurance rates, premiums or eligibility for coverage in all private passenger automobile coverage, renter’s coverage and homeowner’s coverage. By definition, an emergency rule takes effect immediately and lasts for 120 days.

Kreidler failed in his attempt to pass a law that would have done just that through the Washington state legislature during the session that ended April 25. The legislation, which had the support of Democratic Governor Jay Inslee, did not merely run out of time to pass. SB 5010 by Sen. Mona Das, D-Kent, was reported by substitute from the Senate Business, Financial Services and Trade Committee, on Feb. 15 in a watered down version, which would have provided a temporary hiatus from negative credit scores affecting consumers, along the lines of federal COVID adaptations to credit reporting.

The substitute bill was held in the Rules Committee until timelines for moving the bill were exhausted. The bill received its terminal “X file” designation by the Washington Senate Rules Committee on March 17.

Senate Bill 5010 started as a full repeal of any authority for insurers to use credit history in the rating of personal lines insurance, with insurers required to come into full compliance by Jan. 1, 2023. The commissioner resurrected the failed legislation less than a week after its demise in the legislature, implementing an emergency rule, effective immediately on March 22. The emergency rule temporarily prohibits insurers from using of credit scores for personal lines. The temporary nature of the emergency rule is limited by the Washington Administrative Procedure Act. Text included in the final paragraph of the emergency rule indicates that the department intends to make the rule permanent, at least until three years after the coronavirus emergency ceases by presidential proclamation.

In a March 23 joint statement, the trade groups announced their disagreement with Kreidler’s emergency rule. Signing on to the statement were the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, and the Northwest Insurance Council, the same groups whose representatives appeared during the virtual senate committee hearing in opposition to SB 5010 on Jan. 14.

In a news release following the filing of the injunction, Claire Howard, APCIA senior vice president, general counsel and corporate secretary said, “APCIA and our members that write auto, home and renters insurance policies in Washington strongly oppose the unilateral action taken recently by Washington Insurance Commissioner Mike Kreidler. The commissioner’s extreme action exceeds his authority, bypasses the legislature, and robs consumers of the benefits of a highly competitive private market.”

“This legal action is about stopping the commissioner from acting beyond the scope of his authority and requiring him to comply with existing statutes governing the use of credit-based insurance scores by the insurance industry, among other statutes,” said Howard.

Howard continued, “Commissioner Kreidler is attempting to prohibit an important risk-based rating tool that has been in place for nearly 20 years for the benefit of consumers. The commissioner is attempting to circumvent the Washington Legislature by taking an action the Legislature recently explicitly rejected.

“Commissioner Kreidler’s arbitrary and capricious actions will harm more than a million of Washington’s hard-working insurance consumers, who today pay less for auto, home, and renters insurance because of the use of credit-based insurance scores to effectively predict risk and set accurate rates.

“Most consumers save money when credit-based insurance scores are used to assess how much they pay for insurance. Insurance scores are not credit scores like the ones used by banks to offer loans or credit cards. Insurers use specific information about how consumers use credit as one factor to give consumers the most affordable and accurate rate. Many other factors go into how much you pay for insurance, but not race or income. Without these tools, insurance rates could go up for more than a million Washingtonians who are already struggling to pay bills during the COVID-19 pandemic recession.”

Kreidler’s rule uses the pandemic as the basis for the emergency. The reasons found in the rule state that, as a result of the federal CARES Act suspending financial institutions’ ability to demand payments in some circumstances and suspending reporting delinquencies to credit bureaus, credit bureaus are currently “collecting a credit history that is objectively inaccurate. … (C)urrent protections to consumer credit history at the state and federal level have disrupted the credit reporting process,” causing insurance scores to be “unreliable.”

The commissioner concludes: “This makes the use of currently filed credit based insurance scoring models unfairly discriminatory within the meaning” of state law.

In the press release, Howard refers to a February 2021 survey by Lexis Nexis which shows that, during the COVID-19 pandemic, credit-based insurance scores remained stable nationally and in Washington. She said, “There is no information based on which to conclude a decline is on the way, making Commissioner Mike Kreidler’s emergency rule unnecessary, and actually harmful to those paying for car, home and renters insurance.

“Equally important, when a legislative solution was on the table to help consumers facing extraordinary life circumstances like financial setbacks due to COVID, Kreidler stood in the way, insisting on an ‘all-or-nothing’ ban.

“These actions exceed the statutory authority of the commissioner, violate the separation of powers between the executive and legislative branches of government, and directly conflict with several existing statutes, including those that regulate, but clearly allow, credit information to be considered by insurers.

“What’s more, these regulations could cause significant market disruptions at a time when the business community is working together on long-term economic recovery. In the end, it is Washington consumers who will suffer, at the very worst time for the state’s economy and family budgets. That is why we’re seeking to remedy this abuse of power in court.”

The American Property Casualty Insurance Association (APCIA) is the primary national trade association for home, auto, and business insurers. APCIA promotes and protects the viability of private competition for the benefit of consumers and insurers, with a legacy dating back 150 years. APCIA members represent all sizes, structures, and regions—protecting families, communities, and businesses in the U.S. and across the globe.

Kenton Brine, Northwest Insurance Council, may have anticipated Kreidler’s credit score argument, when he asked members of the Senate Business, Financial and Trade Committee on Jan. 14, to separate assumptions from facts. Brine said that supporters of the bill testified using the phrase “what we all know” when what they should have said was “what we all assume.” The assumption that the pandemic has damaged people’s credit scores, said Brine, is false.

Credit bureaus are reporting that credit scores have actually been rising since the pandemic across all the states in the U.S., said Brine, noting that folks seem to be changing their behavior toward greater financial responsibility. They are paying down credit cards and not taking out new loans, factors that affect credit scores, he said. “It’s important,” said Brine, “to check the facts and know whether those things we think are happening are actually happening.”

The commissioner’s concerns, however, appear to be broader than the temporary pandemic reasons stated in the emergency rule. His representative, Jon Noski, legislative liaison for the Washington Office of the Insurance Commissioner, told the committee members during the January legislative committee hearing that the proposed law to prohibit credit scoring would end a practice that is “inherently unfair.” Department P&C Actuary Eric Slavich joined Noski in support of the bill, and said that the commissioner finds the use of credit scoring to be a proxy for racial discrimination, and that any proxy for unlawful discrimination should also be unlawful.

Kreidler is an elected insurance commissioner, one of 12 elected in the U.S. He was first elected in 2000 and currently is in his fifth term. Previously, he served one term in the U.S. House of Representatives and 16 years in the Washington state legislature, as both a representative and senator. Kreidler, 77, is a Democrat.