Credit Scoring and Insurance

By Bob Anderton

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Ever wonder how your car insurance rates are set? You can be sure that it isn’t just your driving history. Recently, however, the Washington State legislature passed a bill regulating insurers’ use of “credit scoring.”

Credit scoring rates people based on their credit reports. You are entitled to access this information and to dispute inaccuracies. To obtain a copy of your credit report call Equifax at 1-800-759-5979.

A 2001 study found that 92% of insurers used credit scoring to make underwriting decisions and/or to set rates for individuals’ insurance policies.

The insurance industry asserts that good credit and good driving are related and that credit scoring results in fairer pricing of insurance.

However, there are clearly problems in applying credit scoring. For instance, public hearings showed that many Muslims and Latinos avoid what insurers consider to be traditional sources of credit. They are therefore penalized for lacking a known credit history.
On the other hand, my insurance company recently informed me that I was getting a “good credit” discount. My insurer says its credit scoring model has been approved by the insurance commissioner. Still, despite my good credit, I managed to have an accident last year.

Twenty-three other states have passed laws or have legislation pending regarding the use of credit scoring.

According to Insurance Commissioner Mike Kreidler, the legislation “is a tremendous victory for Washington consumers and for the hundreds of credit scoring victims we heard from this past year.”

Under the terms of the bill, insurers cannot use consumers’ credit scores to cancel their insurance. Additionally, the legislation contains a list of specific factors that can no longer be used to deny coverage or to determine rates.

The bill now goes to the Governor who is expected to sign it into law.

Content by Bob Anderton,
Attorney at Law


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