On July 1, the American Property Casualty Insurance Association issued a statement in an attempt to refute what Washington Insurance Commissioner Mike Kreidler told consumers in defense of his ban on the use of credit scores in rate making.  Association VP for Government Relations Mark Sektan responded to “misinformation”  Kreidler “is giving Washington consumers about his emergency regulations to ban the use of credit-based insurance scores.”

The misinformation, alleged APCIA, is what Kreidler has told policyholders who ask why they are facing an immediate rate increase when their risk profile has not changed at all. According to APCIA, the Commissioner told consumers that insurers decided to increase their rates, and if they shop around, they will get a better rate. “The first point in that statement is false, and the second is misleading,” said Sektan.

“The Commissioner’s first point is false because his emergency order required insurers to do two things which the industry opposed: 1. Eliminate credit history from rate-setting and 2. File an amended rating plan that had a zero total rate change for all policyholders in the aggregate. Fulfilling both requirements meant raising the rates of some while reducing the rates of others to get a zero total rate change while eliminating credit history,” explained Sektan. “The Commissioner’s emergency order essentially creates a subsidy paid by one group of policyholders in favor of another.”

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.”

“Commissioner Kreidler’s second point is misleading because shopping around penalizes consumers who have been with their carriers for multiple years and who bundled their coverages with the same insurer (e.g., auto and home) for overall discounts,” Sektan added. “They may get a better rate for auto, for example, by shopping around but lose the benefit of years with the same carrier and multiple coverage discounts.”

Sektan recounted APCIA’s position on credit-based insurance scores. “It has been demonstrated that for decades, insurers’ use of credit-based insurance scores gives consumers more affordable and widely available products in the marketplace. In testimony before the Washington State Legislature, the Office of the Insurance Commissioner acknowledged that credit-based insurance scores are highly predictive of risk. Banning these tools results in higher prices for less risky policyholders so less risky drivers subsidize more risky drivers. In fact, the Commissioner rejected two different legislative compromises that would have helped Washingtonians with bad credit histories through no fault of their own without increasing costs for other policyholders,” said Sektan.

“The fairest system of insurance pricing is when each driver is charged based on their unique characteristics and risk. Banning the use of credit-based insurance scores will only reduce consumers’ options and raise rates for hard working Washington policyholders,” Sektan added.

Sektan pointed to remarks by Clark Sitzes, executive vice president for the Professional Insurance Agents Alliance, published as a commentary in the Everett (Washington) Herald on June 27. Sitzes outlined how the ban on insurers’ use of credit scoring harms consumers. “Washington continues to have a competitive insurance market, but more than a million are expected to face higher rates now that this predictive tool has been banned by the commissioner’s emergency rule for the foreseeable future,” said Sitzes.

“APCIA continues to join forces with the Professional Insurance Agents Alliance of Washington, the Independent Insurance Agents and Brokers of Washington, the National Association of Mutual Insurance Companies, and the Northwest Insurance Council to oppose Washington Insurance Commissioner Mike Kreidler’s campaign to ban the use of credit-based insurance scores,” said Sektan.

“The Commissioner’s rule is already causing significant disruption in Washington’s insurance market and will raise rates for more than a million policyholders. The negative effects of these regulations will continue to be felt by consumers and insurance producers, as well as lenders, realtors, auto dealers, and others who conduct transactions that require insurance, such as home sales, auto purchases, RV and boat sales, auto leases, rental agreements, and more,” said Sektan.