Legislation would limit credit scoring by insurers

State insurance chief says practice harms poor

LORRINE THOMPSON, THE OLYMPIAN

OLYMPIA -- State lawmakers are being asked to decide if insurance companies should be allowed to cancel policies or double insurance rates based on a person's credit history.

The practice is called "credit scoring," and it particularly affects the elderly, the young, the low-income, and possibly minority populations, state Insurance Commissioner Mike Kreidler said.

"We don't know what they're looking at. We call it the black box," Kreidler said of the secret credit scoring methods used by insurance companies.

Kreidler and other state officials have proposed a bill that would ban canceling or denying insurance policies based solely on credit history, and limit premium increases based on credit scoring to 20 percent.

"We have found that right now it can make a 100 percent difference (in premiums) between two identical people," Kreidler said.

The bills -- Senate Bill 6524 and House Bill 2544 -- were heard before Legislative committees last week.

Insurance company officials say credit scoring helps them determine who is a poor risk -- who is more likely to submit claims.

"Insurance companies need to be able to predict risk accurately so that what consumers pay for insurance reflects its cost," according to a report on credit scoring by the Insurance Information Institute.

"Studies have found a very strong link between insurance scores and the likelihood of auto or homeowner insurance losses," the report said.

Credit scoring can work both ways, helping people with good credit histories get good insurance rates, the report added.

Kreidler, however, said his office has uncovered some "basic unfairness" to the practice that is hurting Washington residents.

For instance, an elderly couple who have paid all bills and use little or no credit might get a poor credit score because of lack of information.

"It's called a 'no-hit,' " Kreidler said of the lack of information that returns when a company inquires about credit history.

Also, some people get lower credit ratings because of major medical problems or unemployment, yet have excellent histories of paying bills and having no claims.

A person can have insurance premiums double or insurance plans canceled, and have done nothing wrong, Kreidler said.

"What happens in a recession? What do you do with a laid-off Boeing worker?" he said.

State officials are also concerned that the credit-scoring practice could be discriminatory to certain populations -- elderly, single mothers, minorities -- who tend to have lower incomes and lower credit ratings.

"As a society, do we want to treat single female heads of households differently?" Kreidler said.

The Insurance Commissioner's Office has received numerous complaints and e-mails from Washington residents dropped from their insurance, or having to pay double or triple premiums, said Gigi Zenk, a spokeswoman for the office.

The stories of people hurt by the credit-scoring policies are beginning to mount, she said.

"We have a 4-inch stack of e-mail and letters we've received from people," she said.

She and Kreidler said they expect a fierce battle regarding the proposed bills.

Insurance companies "have hired (public relations) firms and they're making the rounds," Zenk said.

Similar to tobacco lawsuits, a victory in Washington to limit credit scoring in insurance could cause a domino effect across the United States, Kreidler said.

"The companies can ill afford to have me win on this bill," he said.

Lorrine Thompson covers Thurston County and health for The Olympian. She can be reached at 360-754-5431.

For related stories go to the South Sound section.

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