Regulators Continue to Voice Concerns on Credit Scores

Consumer credit history has been used by the insurance industry since the 1990s, when the Fair Isaac Corporation (FICO) introduced credit-based insurance scores. These scores assist insurance companies with risk management by helping to decide whether a consumer is eligible for coverage, as well as to set the rate a consumer pays for that coverage. The use of credit-based insurance scores is regulated by the states, with prohibitions regarding the circumstances when those scores may be used.

However, concern over the use of credit history and credit scoring in the insurance industry has been on the radar of regulators for a while. There have been various attempts in the past to modify both state and federal law on the issue. For example, in February of this year, the Oklahoma legislature introduced House Bill 3007 , which would prohibit the use of credit information to underwrite or rate risks, among other things. In 2019, a bill was introduced in the U.S. House of Representatives which specifically targets the use of consumer reports and consumer information in the auto industry. H.R. 1756, 116th Cong. (2019) (Preventing Credit Score Discrimination in Auto Insurance Act).

Now, Mike Kreidler, insurance commissioner for the state of Washington, is reigniting the issue against the backdrop of economic uncertainty resulting from the pandemic and the increasingly widespread movement calling for an end to systemic racial discrimination. Specifically, he is asking the legislature to amend a state law on underwriting restrictions that apply to personal insurance, as well as a law on the making of rates. RCW 48.18.545; RCW 48.19.035. Although both laws include certain restrictions, they both contemplate the continued use of credit history and insurance scores. Kreidler called the practice unfair and discriminatory, asserting that it “unjustly targets people of color, those with lower incomes and individuals and businesses struggling during the coronavirus pandemic.” He also noted that the economic impact of the pandemic is likely to be felt “for years to come,” and that consumers will have more difficulty increasing or maintaining their credit scores. Kreidler’s proposal will be sponsored by Senator Mona Das and Representative Steve Kirby. We will continue to monitor the progress of this and will report any updates.