OLYMPIA, Wash. — The key to low rates for car insurance really depends on your credit and driving record. But a new bill in the state legislature has been introduced that would eliminate the use of credit scores to determine your rates.
“It shouldn’t be there. It shouldn’t ever have been permissible. It’s still there and we should get rid of it,” says Washington State Insurance Commissioner Mike Kreidler.
Here’s one reason why Kreidler wants to end this practice: according to the Consumer Federation of America, the average new customer premium for adult single drivers with a clean record - with excellent credit - in Washington is $1,026.
Good credit: $1308.
But if you have poor credit, premiums jump to more than $2,500.
“Many insurance companies didn’t want to use credit scoring because they saw, innately, there were problems with its use for the very reasons we’re describing. But they felt for competitive reasons - if their competitors were using it, they had to use it. There’s one way to solve it. Eliminate it from everybody,” says Kreidler.
While credit scores are going up nationally, the worry is for those who’ve lost their jobs and are facing financial insecurity caused by the pandemic.
Amy Teshera is one of them.
“My husband lost his job, and there was that expense, and then strikes the pandemic, and then there’s that issue and credit wise, we’ve been struck, we’ve been hurt,” says Teshera.
She saw her rates for her home and auto policies jump when her credit score fell.
“I’ve never had a ticket, I’ve never been in an accident; I’ve never had any driving activity whatsoever. And because of the credit scoring my insurance rates for my auto insurance went up by $125 a month,” says Teshera.
It’s ironic that she then filed this complaint about her situation. She ended up emailing it to her employer: The Office of the Insurance Commissioner.
“I think the credit scoring has gotten out of control,” says Teshera. “To tell you the truth, it’s really gotten out of control.”
Even some insurance agents like Steven Hall with MTC Insurance, who has 37 years of experience in the business, are speaking out against the practice.
“I think it is a burden they should not have to bear. I think if their driving record is clear, and they paid their insurance bill on time, their insurance should remain stable,” says Hall.
The insurance commissioner also believes the practice disproportionately harms people of color. And that bears out in credit scores.
A Federal Reserve report says one in five Blacks has a credit score below 620, compared to 1 in 19 Whites. Good credit scores range from 690 up.
“By just generalizing and saying ‘because you have a low credit score and you might file a claim, we’re going to start charging you more for your personal lines, homeowners, and car insurance,’ it has a very very negative impact on that individual. It’s the kind of disincentive that isn’t part of America, shouldn’t be part of America. It should be eliminated,” says Kreidler.
An insurance industry representative defends the practice.
“If you are a person who manages their finances in a certain way, you are going to present a certain risk profile to an insurance company regardless of your race and income,” says Kenton Brine, with the Northwest Insurance Council.
Brine says credit scores are used to create an “insurance score” which takes many factors, including credit scores, into account. He believes that score can predict the risk a consumer poses to file a claim.
“Insurance scores aren’t used the way people think they are used. They’re not necessarily having the impact people assume that they are and they do benefit consumers regardless of race and income,” says Brine.
Not all companies are sticking with using credit scores to determine insurance rates. Enter Columbus, Ohio-based Root Insurance, which uses information from a smartphone app that tracks drivers’ habits and then determines their rates.
“So we think that individual driving behavior - and measuring that - is by far the most fair way to do it,” says Root Insurance communications director Tom Kuhn.
Kuhn says his company will eliminate credit scoring by 2025 and hopes to enter the Washington market early next year.
“We just think that it’s where the industry should be going everywhere. So, we obviously, we want to celebrate what Washington state is doing, and the leadership the state is taking on this, and eliminating this point of unfairness and bias in car insurance,” says Kuhn.
Brine says protections in the CARES Act will protect consumers’ credit histories. And while the industry wants to improve the system, it believes this new bill will hurt consumers.
“The passage of this legislation would result in, very likely, higher rates for most consumers on their home insurance, their auto insurance, their renter’s insurance and boat insurance,” says Brine.
California eliminated the use of credit scores in the late 1980′s. One study showed consumers ended up paying almost 6% less for liability insurance in 2015 than they did in 1989, while the nationwide average increased 58%.
Our next story will dive even deeper into the issue of race and credit scores. And we’ll track this bill as it makes its way through the state house.
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