Washington State Credit Ban Frequently Asked Questions
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For the last 20+ years most insurance companies in WA and throughout the country have used a credit-based insurance score when determining auto, motorcycle, RV, home, condo, landlord and renter’s insurance. That means the premium for these policies is based on objective data such as driving records (traffic citations, claim history, etc), age, along with other factors such as credit-based insurance scores. Based purely on 20 years of objective data, drivers with higher credit scores typically file fewer and less severe claims and therefore have lower premiums.
Basically it helps insurance companies objectively predict the likelihood of a client having a future claim and therefor provide each client with the most accurate rate possible. Losing access to this proven rating factor would complicate the insurance company’s ability to effectively predict risk leading to less accurate rates which in turn could/will lead to rate increases. The ability for an insurance company to responsibly underwrite and determine the premium based on highly predictive data helps consumers benefit from lower rates, more choices along with greater market and price stability.
During the 2021 session of the Washington Legislature, Commissioner Kreidler requested legislation to ban insurance companies from using a credit-based insurance score. Legislators rejected his proposal. Then, ignoring over two decades of established law and the will of the Legislature, the Commissioner issued a ban by his emergency rule in March, giving insurers only weeks to file new rating plans for millions of policies now in force in Washington. The emergency rule was issued without the knowledge of or input from legislators, consumers, insurance companies or producers. The emergency ruling will become effective 06/20/2021 and impacts ALL insurance companies selling auto, motorcycle, RV, home, condo, rental properties and manufactured home products in WA.
The Insurance Commissioner’s reasoning, per the OIC website, is that “Commissioner Kreidler believes credit scoring is unfair. Insurers say that credit or insurance scores are blind to race or income, but he believes the practice has a disparate impact on people with lower incomes and communities of color.”
Over the years Commissioner Kreidler has tried several times to ban credit-based insurance through legislation. And failed. However, when Governor Inslee proclaimed a State of Emergency throughout WA and the President signed the CARES Act in response to the COVID outbreak it provided Commissioner Kreidler the “power” to proclaim his own “emergency ruling” banning insurance companies from using credit-based insurance scoring. Kreidler was able to do this without the knowledge of or input from legislators, consumers, insurance companies or producers. Further, the Insurance Commissioner also prevented insurance companies from offering new or additional discounts to offset the premium increase.
Yes. ALL insurance companies selling auto, motorcycle, RV, home, condo, rental properties and manufactured home products in WA will be required to abide by this new ruling. Further, the Insurance Commissioner also prevented insurance companies from offering new discounts or rates to offset the premium increase.
Technically, an emergency rule can only last 120 days, however the insurance commissioner is pursuing a normal (non-emergency) rulemaking to make this rule “permanent”. The insurance commissioner expects the 3-year timeframe to be included in the permanent rule. So the emergency rule will automatically expire after 120 days unless either a permanent rule is adopted or the emergency rule is refiled under RCW 34.05.350.
Everyone in the state of WA with an auto, home, boat or RV policy will be impacted. As will other industries that rely on auto insurance and home insurance such as mortgage lenders and auto/boat/RV finance companies. The Commissioner’s rule is already causing significant disruption in Washington’s insurance market, and the negative effects will be felt over the next several weeks, months and possibly years 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, RV and boat sales, auto leases, rental agreements and more. The mandatory discontinuation of credit-based insurance scores will lead to the removal of discounts for most at their upcoming policy renewal.
Honestly, until more data can be collected we are unsure exactly how your individual rates will be impacted. Based on the limited data available, clients with average to excellent credit may end up paying more so as to subsidize customers with the highest likelihood of future claims. The mandatory discontinuation of credit-based insurance scores will lead to the removal of discounts for most at their upcoming policy renewal.
As your trusted advisor we will continue to closely monitor your account and provide options to combat this potential premium increase. Per the IIABW, “Insurance carriers predict over one million Washington residents will face double digit rate increases on auto, homeowners and renters insurance as a result of the rule starting on June 20th.”
No. Most, if not all, insurance companies in WA have fought against Commissioner Kreidler’s mission to ban credit-based insurance. However, the state of emergency afforded Kreidler the “power” to push out the “emergency ruling” without the knowledge of or input from legislators, consumers, insurance companies or producers. Further, the Insurance Commissioner also prevented insurance companies from offering new discounts or rates to offset the premium increase.
First, you are our top priority! We will answer any questions you have and will do our best to proactively keep you informed as changes happen. And as your trusted advisor we will continue to closely monitor your account.
Second, we want you to know that we are on your side and completely understand your frustrations, both as a fellow consumer and as your insurance advisor. We are here for YOU. We are looking out for YOU. We are in this TOGETHER.
Third, we will be proactively reviewing your account to offer creative solutions on how to offset the premium increase that is most likely coming. Plus, as your insurance broker we work with numerous insurance carriers allowing us to find the right solution for you. We will continue working hard for you!
Fourth, we’ll gladly work with your mortgage professional, financial advisory, auto finance company, attorney, etc to find solutions that are in your best interest. They are welcome to contact us directly as well.
The good news, you won’t need to do anything… we’ll do all of the work for you!!!! Thankfully, as a broker we work with numerous insurance companies so we’ll contact you with options to either reduce the premium with your current insurance company or provide quotes with additional insurance companies if needed. Your best interest is our top priority!
Yes. The PIA, APCIA, NAMIC and IIABW are part of a lawsuit filed against Commissioner Kreidler’s ban on credit-based insurance scoring. Commissioner Kreidler also banned insurance companies from offering additional discounts to offset some of the premium increase. So there will most likely be a 2nd wave of rate filings submitted by most, if not all, insurance companies however this will most likely take months to review the data, submit new rate filings and be reviewed by the Insurance Commissioner.
No. A credit score and insurance score may seem the same, but a FICO Score is used to show lenders how likely you are to repay your debt. A credit-based insurance score is used to show insurance providers how likely you are to have a claim.
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