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CR praises Washington state order banning insurers from using credit scores for setting rates for personal property coverage

Insurance Commissioner’s order prohibits credit scores as rating factor for auto, renters, and homeowners insurance for three years 

OLYMPIA, WA —  Consumer Reports applauded Washington state Insurance Commissioner Mike Kriedler for issuing an emergency order prohibiting insurers from using a consumer’s credit score to price auto, renters, and homeowners coverage for three years.  CR has long opposed the widespread use of credit scores for setting insurance premiums because it unfairly discriminates against consumers with lower incomes and has a disproportionately negative impact on communities of color.

“It is fundamentally unfair to penalize consumers with higher insurance rates just because they have a less than stellar credit score,” said Chuck Bell, programs director for advocacy for Consumer Reports. “Your credit score has nothing to do with whether you are a responsible driver, renter or homeowner and shouldn’t impact how much you pay to insure your property.

Bell continued, “Basing insurance rates on credit scores magnifies the negative impact of income disparities and systemic racism in our society. Today’s action will ensure that insurance is priced fairly in Washington and help everyone afford the coverage they need.  We hope the state legislature will take action before this order expires to make the ban on credit scores permanent.”

In 2015, Consumer Reports found that socioeconomic factors sometimes weigh more heavily than driving details in the premiums insurers set. CR’s investigation revealed that a poor credit score could add $500 to $2,000 or more to a driver’s annual premium compared with a consumer who had the same driving record and excellent credit.

CR has opposed the use of credit scores for insurance pricing and underwriting because the discriminatory impact of the practice makes insurance less affordable for consumers with lower incomes.  Insurers have many other rating factors at their disposal to properly price insurance based on actual risk.

Insurers in 46 states can use what’s called a credit-based insurance score to determine, in part, homeowners insurance premiums.  The practice isn’t allowed in California, Maryland, Massachusetts, and Michigan.  California, Hawaii, Massachusetts, and Michigan have banned the use of various types of credit information for auto insurance pricing, and bills are pending in several states to also ban its use, including New Jersey, New York and Oregon.

Michael McCauley, michael.mccauley@consumer.org, 415-902-9537