“This is really unfair,” said Richmond, a Vashon Islander who claims to have an impeccable driving experience but her credit rating has dropped by about 200 points this year. “People are suffering now.”
Mike Kreidler, Washington State Insurance Commissioner, agrees. He said linking insurance to credit reports is a particularly damaging practice during the global economic crisis that has led to widespread unemployment.
Now Kreidler is proposing a law to cut the link between credit ratings and insurance rates so that people whose credit scores are declining during the pandemic also don’t have to pay more on insurance.
“These credit ratings have declined for a lot of people – and are we going to make sure they pay more?” said Kreidler, the state’s insurance regulator. “… Where is the justice in this?”
For Kreidler, it is also a question of fairness. He said low-income people, who are disproportionately black, indigenous and colored, tend to be hardest hit by the insurance industry’s dependence on credit scoring.
BUT research published this year by the Federal Reserve It was found that a typical white family has eight times the wealth of a typical black family and five times the wealth of a typical Hispanic family. Another study by the Federal Reserve in 2007 found that Blacks and Hispanics had significantly lower credit ratings than white and Asian people.
Also in 2007. FTC report found that when looking at credit history, black and Hispanic clients were, on average, classified as riskier to insure. This decision usually results in customers paying more for insurance.
Because of these factors, Kreidler sees the insurance industry’s use of credit reports as a prime example of institutional racism.
IN july letterKreidler drew attention to public statements by several insurance companies in the midst of this year’s Black Lives Matter protests about the need to tackle racism and social inequality.
“Leaders — both public and private — must now take action to fulfill their recent commitments to end structural inequalities that have existed for far too long in our society,” Kreidler wrote, asking industry to back his bill.
Richmond’s insurance company, Allstate, did not respond to questions about the Richmond rate hike, but wrote in an email that “race is not a factor in pricing, underwriting or claims settlement.”
In a letter last month, insurance groups told Kreidler’s office they were opposed to a draft version of his bill.
The groups have called their credit rating system an “objective and accurate method” of assessing how much someone is at risk of insuring themselves. They wrote that the credit insurance scores used to determine rates “are tied to risk, not race or income.”
“Credit rating of insurance is a forecasting tool for insurers and fair for consumers”, according to the lettersigned by the American Property Accident Insurance Association, the Northwest Region Insurance Board and the National Association of Mutual Insurance Companies.
As evidence, the companies cited a 2007 FTC study that said credit insurance scores were fairly accurate in predicting how likely a client would be to file a claim.
Regarding whether the use of credit reinforces systemic racism, Kenton Bryne, president of the Northwest Region Insurance Board, wrote in an email that “the charge is strong but unsubstantiated.”
Others fail to see the connection between a person’s credit report and the likelihood that they will have an accident or file an insurance claim.
Linda Taylor, vice president of housing and finance for the Metropolitan Seattle City League, said credit ratings do not take into account many bills that people pay securely every month, such as rent and utilities, making credit history poor. personal responsibility.
Corey Orvold, a real estate agent who leads the homebuyer class from the Tacoma Urban League, agrees. “I could have a great reputation and be a terrible driver or a terrible cook. There is really no correlation, ”she said.
Because black Americans, in particular, have been denied the ability to create wealth between generations, including by being denied education and home ownership, Orvold said, they are less likely to be able to ask their parents or family members for money. in difficult times. This could lead to more violations that negatively impact their credit ratings, she said.
Orvold said raising homeowners insurance fees based on credit history could make buying a home even more unaffordable for those with less than stellar credit.
“Paying home insurance is part of your mortgage payment,” Orvold said. “It’s just another barrier that people can say, ‘My homeowner’s insurance is too high, I can’t afford this house.’ “
Insurance companies, meanwhile, claim that credit tracking allows them to offer discounts to many customers with good credit history.
State level reports from arkansas as well as Vermont This seemed to confirm this by finding that while some people paid more for insurance based on credit reports, most customers paid less. Pickle from the NW Insurance Council argued that a ban on reviewing credit would drive prices up for most people.
But those looking to end the practice say this was not the case in California, where voters passed a measure in 1988 to prohibit the use of credit history in determining auto insurance rates.
In accordance with 2019 report from the Consumer Federation of AmericaCar insurance rates in California grew much more slowly from 1989 to 2015 than in other states. California’s liability insurance rates have actually declined slightly during this time, the report says.
Meanwhile, the increase in costs can be significant for those who are penalized for their poor credit rating.
BUT Analysis for 2015 Consumer Reports found that in Washington state, a driver with a bad credit history and an impeccable driving experience would pay $ 690 more per year for auto insurance than one with an excellent credit and drunk driving history.
Senator Mona Das, Kent, said that if people end up paying higher bills because of their credit rating, it will be even more difficult for them to get out of debt and improve their credit. “It’s kind of a circular issue,” said Das, who plans to endorse the Kreidler bill in the state Senate.
Das said she, too, views the exclusion of credit ratings from insurance rates as a racial equality issue, as well as an urgent need for the legislature to address due to the pandemic.
Passing the Kraidler Act is a priority for Seattle King County’s Black Lives Matter and the Washington Black Lives Matter Alliance, a spokesman said.
Richmond, a Vashon Island resident whose auto insurance bill has doubled, said she believed there should have been a moratorium on insurance companies that increase people’s insurance premiums during the COVID-19 crisis, similar to the state’s eviction moratorium imposed by the state at the beginning. this year.
Since this did not happen, she said that Kreidler’s bill was a good decision.
“I’m not the only one suffering, and this has been the worst year possible,” Richmond said. “Obviously it’s something that fell through the cracks.”
Only two states – California and Massachusetts – prohibit the use of credit insurance points for both homeowners and auto insurance policies, as Kreidler suggests. Hawaii bans credit information only for auto insurance, while Maryland bans it only for homeowners insurance.
Kreidler said he believed Washington should act quickly and set an example for other states across the country.
“This is where society needs to intervene,” Kreidler said. “If we take a hard line here, we will create a model for other states to approach, we hope Washington will do it.”
Kreidler and Das plan to officially introduce their legislation sometime this month.
The new 105-day session of the Legislature begins on January 11.