By Clark Sitzes / For The Herald
Washington state homeowners, renters, boaters and drivers renewing their insurance policies should be aware they may get a surprise when they open their next bill.
Washington Insurance Commissioner Mike Kreidler has issued an emergency rule that prohibits insurance companies from considering credit information in setting rates. The state Office of the Insurance Commissioner has required insurers to file new rating plans that exclude the use of credit information and to use the new rates in the market by the end of this month.
Kreidler is boasting that his emergency rule will provide decreases for many, but that is not the full story. His emergency rule is already causing negative changes in Washington’s insurance marketplace. Some consumers will see rate decreases but more than a million insurance consumers in the state will see immediate increases. The negative effects will be felt over the next several months by consumers, insurance producers, as well as lenders, real estate agents, auto dealers and others in transactions that require insurance to close the deal.
The use of credit-based insurance scores — which measure consumer behavior, predict the likelihood of future claims and help insurers more accurately set rates for policies — has been authorized in Washington statutes and regulations for more than 20 years. During the 2021 session, Kreidler requested legislation to ban this practice, then rejected a legislative proposal to help those with bad credit due to changes in their life circumstances while preserving the benefit for millions of others with good credit.
Less than two weeks after the Legislature adjourned, ignoring over two decades of established law and the will of lawmakers, Kreidler banned the use of credit scores by emergency rule and gave insurers only weeks to file new rating plans for millions of policies now in force in Washington. This major shift in rating eliminated the use of credit-based insurance scores which all studies have shown to be predictive of claims and losses. Some consumers who pose a higher risk of claims will receive the good news that their rates have decreased, but many more who benefited from the use of credit-based insurance scores will face rate increases that could total hundreds of dollars annually. Insurance agents and brokers are left to navigate these turbulent waters and to explain to their customers that they are facing immediate rate increases because of the commissioner’s action.
As the Washington economy reopens from the pandemic, lenders, real estate agents and auto dealers seeking to assist consumers with closing on the purchase or rental of a home or purchase or lease of a vehicle, car, boat or RV may run into unexpected delays or higher insurance costs. This obstacle may come late in the process of completing loans or closing documents.
Agents and brokers are working to get the word out about these changes and cost increases, so consumers are not caught off guard. Washington consumers and those who rely on securing insurance coverage for retail transactions should begin looking for insurance early to ensure as much time as possible to obtain and confirm coverage. There is still an active and competitive insurance market for these products, but it will be more challenging to find coverage and more costly for many others because of what the commissioner has done.
Organizations representing insurers and agents have filed a lawsuit challenging the Kriedler’s emergency rule. But insurers must comply with the rule unless or until it is overturned by the courts or the Legislature.
If you are having trouble finding coverage, or finding coverage cost has increased, we urge you to share your experience with your agent, broker or state lawmaker. It is likely legislators will consider more bills on this issue in 2022 so it is important that they hear how this is affecting their constituents.
Washington continues to have a competitive insurance market, but more than a million are expected to face higher rates now that this predictive tool has been banned by the commissioner’s emergency rule for the foreseeable future.
Clark Sitzes is the executive vice president for the Professional Insurance Agents Alliance.
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