Former bank executive Sen. Mark Mullet chairs the committee that watered down the bill.
Former bank executive Sen. Mark Mullet chairs the committee that watered down the bill. COURTESY OF WASHINGTON STATE LEGISLATURE

In a press release last week Washington Insurance Commissioner Mike Kreidler disavowed a credit scoring bill his own office requested from the Legislature, claiming the Senate's Business committee, chaired by Democratic state Sen. Mark Mullet, worked with insurance company lobbyists to water down the legislation's language in order to "protect insurers, not consumers."

Kreidler's legislation, Senate Bill 5010, would have stopped insurance companies from using credit scores to set premiums for certain kinds of products, including home and auto insurance.

"Credit scoring is an insidious industry tool that for too long has subsidized the well-off at the expense of punishing low-income people and many people of color. The insurance industry’s bill maintains this inequity. I do not support this watered-down bill and am committed to seeing that we get a full ban in our state," Kreidler added.

Sen. Mona Das, who sponsored the bill but who doesn't sit on the committee, said "it's not the giant leap that we wanted, it is a step in the right direction," and added that the new version "will still help people whose credit scores have been negatively impacted by COVID-19."

We'll talk about how much water the insurance company added to the legislation in a second, but first let's talk about why it's fucked up to use a person's credit score to determine how much that person will pay for car insurance, which the state forces everyone to buy under penalty of hefty fine, or worse.

A cartoonishly greedy practice

In Washington, on average, a person with a clean driving record but a poor credit score pays more for car insurance than a person with an excellent credit score and a DUI on his record, according to a report from the Consumer Federation of America (CFA).

That patently insane outcome exists because credit scores weigh heavily in the formula insurance companies use to figure out how much to charge people for their product. Earlier this year, the CFA sought to determine just how much credit scores weighed in that formula and found that "statewide, safe drivers with Poor credit pay 79%, or $370, more on average than a driver with Excellent credit, all else being equal" for liability-only car insurance.

To determine this average, the CFA invented one profile with different credit scores and shopped around for the price of the cheapest car insurance at the state's top ten insurance companies. The profile was a 35-year-old woman driver living in the Rainier Valley (98118) with "no accidents and no tickets in their driving history and who drives a 2011 Honda Civic 12,000 miles per year."

The cheapest premium CFA found for that person with a poor credit score was $996 per year, but the cheapest premium they found for that person with an excellent score was $372 per year.

As you might rightly assume, credit scores do not give insurance companies any insight into the driving record of a given client. Doug Heller, an insurance expert with the CFA, said credit scores are "very good signifiers for a recent divorce, evidence of a recent medical catastrophe or a job loss, but not how carefully you handle yourself behind the wheel."

Credit scores also tell insurance companies whether a given driver is in a financial position to buy multiple cars (or more expensive coverage packages, or other insured goods such as houses), and, therefore, whether those people are in a position to establish more a profitable relationship with the company, Heller continued. Without that information, it'd be harder for insurance companies to jack up prices on the poor to subsidize prices for the well-off people whose business they're all competing for.

Due to generations of public policy designed to rob Black and brown communities of wealth, people of color make up a disproportionally high number of people with low credit scores. According to the Washington Insurance Commissioner, "one in five Blacks has a credit score below 620, compared to 1 in 19 Whites." Black people and Latinx people are also uninsured at higher rates than white people. This means, on average, Black people are paying much higher prices for insurance than white people, and those high prices might be pushing them and other POC out of the market, which increases their exposure to fines they can't afford. In other words, the policy's fucking racist.

And what's bad for people of color, of course, is bad for everyone else, too. Washington has one of the highest uninsured motorist rates in the country, which increases the premiums for people who buy uninsured/underinsured motorist coverage on their insurance policies.

Insurance companies argue that "credit-based insurance scores are an accurate and fair predictor of risk of loss." The companies "don’t know exactly why," but "some theorize that people who are fastidious in managing their credit are similarly disposed in other areas of their lives."

Banning the use of credit scores to help set premium rates would ultimately result in insurance companies raising prices on people who could afford it, which, if they even noticed the hike, might be unpopular with the constituents of some Senate Democrats in swing districts.

In committee last week, Sen. Mullet, who, incidentally, voted against repealing Washington's affirmative action ban, argued that an "unintended consequence" of the ban would be a rise in prices on seniors, who tend to have better credit scores on average than the youths.

However, Heller said "the most vulnerable seniors, seniors who are financially stressed," would benefit from the ban, as credit scores tend to fall when spouses die and when income recedes and reliance on social security increases.

In any event, if we truly wanted to rid the state of this cartoonishly greedy practice, we would not be alone. According to the Center for Insurance Policy and Research, California, Hawaii, Massachusetts, Michigan, and Utah can't use credit scores to jack up auto insurance prices on their low-income customers.

A watery bill

Rather than ban the practice outright, as Kreidler has wanted to do since taking office in 2000, the new version of the bill directs insurers to use a client's highest credit score when they renew a property or casualty insurance policy. (Home and auto insurance policies typically renew annually.) The law sunsets after three years.

Since the pandemic tanked some peoples' credit scores, and since higher credit scores lead to lower insurance costs in this hell world, the new bill would help people who enjoyed good credit scores before the pandemic spend less on home and auto insurance when their policy renews if they saw a reduction in their credit score.

In his release, Kreidler pointed out that that the new law takes effect in the fall of 2021, so "if your credit suffered during the pandemic and your policy renews before October 2021, the bill offers you no relief," and "if you want to shop around for a better policy, you’ll get hit with your current credit score—not the best score."

The bill passed the Senate business committee last Monday with all in favor except for Sen. David Frockt, who voted "without recommendation." That sort of vote allows the bill to move out of committee, but during the hearing Sen. Frockt said he reserves "the right to do whatever on the floor."

Sens. Bob Hasagawa and Steve Hobbs expressed some reservations and pushed for budget writers to add a study of the issue as a proviso rather than amending the bill to include a study, which might have slowed down its passage.

For now, the bill will sit in the Rules committee until leadership schedules it for a floor debate. If you want to press your representatives in the Senate and the House to either kill this bill or else voice your support for a full ban, you know where to find them.