Legislation advancing through the Washington Senate would initiate a study on the impact of credit history, credit-based insurance scores, and other rating factors that could have disparate effects on policyholders.
Senate Bill 5589 passed the Business, Financial Services, and Trade Committee on Feb. 20. A companion bill in the House of Representatives was referred to the Consumer Protection & Business Committee on Jan. 30.
The bill was introduced by Washington Insurance Commissioner Patty Kuderer (pictured above), who previously served as a state senator before being elected commissioner in November.
Kuderer has identified the measure as a priority for 2025, along with a bill addressing policyholder restitution and efforts to increase transparency in premium setting.
According to the bill’s text, the proposed study would examine how credit-based factors influence premiums and explore alternative factors that insurers could use in place of credit history.
If enacted, the Office of the Insurance Commissioner would be required to submit a preliminary report to lawmakers by Dec. 31, including findings, policy options, and recommendations.
Several proposed amendments were rejected. One amendment sought to narrow the study’s focus to the use of credit history in setting premiums. Sen. Perry Dozier, a Republican representing District 16, argued that the scope was too broad to be completed in one year.
He noted that previous data from two years ago could provide insights into how credit history affects insurance costs.
Efforts to limit the use of credit-based insurance scores were previously pursued by former Washington Insurance Commissioner Mike Kreidler, who attempted, but failed, to ban the practice.
The use of credit-based insurance scores in the United States has been a topic of ongoing debate, with various states implementing different regulation and considering reforms.
In 2020, Nevada imposed a temporary ban on the use of credit-based insurance scores for increasing premiums, citing the disproportionate impact of the COVID-19 pandemic on policyholders' credit information. This ban was upheld by the Nevada Supreme Court in February 2023.
Proponents argue that credit-based insurance scores provide insurers with an effective tool to predict the likelihood of a consumer filing claims, thereby enabling more accurate pricing of policies. Consumers with strong credit histories may also benefit from lower insurance premiums, as insurers consider them less likely to file claims.
Critics, however, contend that relying on credit-based insurance scores can disproportionately affect low-income individuals and minority groups, potentially leading to higher premiums for those who may already face financial challenges.
There is also an ongoing debate about whether a person's credit history is a fair indicator of their insurance risk, with some arguing that it may not accurately reflect an individual's likelihood of filing a claim.
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