Report - 2021 02 15 A28658 D228900 Bill Report 5010 Sbr Bfst Ta 21

Summary

A Senate Bill Report on SB 5010, as of January 14, 2021, prepared by staff of the Senate Committee on Business, Financial Services & Trade. The bill would prohibit the use of credit history in determining rates or premiums for personal insurance, and was requested by the Insurance Commissioner and the Office of the Governor with Senator Das as prime sponsor. The background section describes personal insurance lines and how credit history and insurance scores are used under Washington State law. The bill summary states that, effective January 1, 2023, insurers must not use credit history to set personal insurance rates, and that on or after January 1, 2022 the Office of the Insurance Commissioner shall disapprove filings that use it. The report closes with a staff summary of pro and con public testimony and a list of persons testifying.

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Full text

                             SENATE BILL REPORT
                                   SB 5010

                                      As of January 14, 2021

Title: An act relating to prohibiting the use of credit scores to determine rates for personal lines
     of insurance.

Brief Description: Prohibiting the use of credit scores to determine rates for personal lines of
     insurance.

Sponsors: Senators Das, Randall, Billig, Carlyle, Conway, Dhingra, Hasegawa, Hunt, Keiser,
    Kuderer, Liias, Lovelett, Nobles, Nguyen, Pedersen, Robinson, Rolfes, Saldaña, Stanford,
    Van De Wege and Wilson, C.; by request of Insurance Commissioner, Office of the
    Governor.

Brief History:
     Committee Activity: Business, Financial Services & Trade: 1/14/21.


                                      Brief Summary of Bill
           • Prohibits the use of credit history in determining rates or premiums for
             personal insurance.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE

     Staff: Kellee Gunn (786-7429)

     Background: Personal Insurance. Personal insurance includes the following:
        • private passenger automobile coverage;
        • homeowner's coverage, including mobile homeowner's, manufactured homeowner's,
          condominium owners, and renter's coverage;
        • dwelling property coverage;
        • earthquake coverage for residence and personal property;
        • personal liability and theft coverage;
        • personal inland marine coverage; and



     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

Senate Bill Report                              -1-                                             SB 5010
         • mechanical breakdown coverage for personal auto or home appliances.

     Credit History and Insurance Scores. Credit history is any information provided by a
     consumer reporting agency on a consumer's creditworthiness, credit standing, or credit
     capacity. An insurance score is derived from an algorithm or model that is based in whole
     or in part on credit history. Credit history may only be used if the insurance scoring models
     are filed with the Office of the Insurance Commissioner (OIC) by the insurer. Using credit
     history or an insurance score to determine rates, premiums, or eligibility depends on the
     insurer and the regulator. Personal information, such as gender, age, or marital status,
     cannot be used in a credit-based insurance score.

     Use of Credit History in Insurance. Insurers may use credit history to determine how much
     premium to charge or whether to issue or renew an insurance policy. Depending on the
     state, certain limits and restrictions exist on how an insurer may use credit history.

     In Washington State, credit history may only be used to deny personal insurance in
     combination with other substantive underwriting factors. A person may not be denied
     insurance coverage or have their premiums or rates determined by the number of credit
     inquiries; collection accounts identified as medical bills; buying or financing a first vehicle
     or first house; the type of credit, debit, or charge card used; or the total available line of
     credit in their credit history. Additionally, a person without credit history cannot be denied
     insurance coverage.

     Summary of Bill: Effective January 1, 2023, insurers must not use credit history to
     determine rates or premiums for personal insurance policies issued or renewed.

     Prior to January 1, 2023, if an insurer files rates and rating rules for personal insurance
     using credit history, the insurer must submit a filing to remove the use of credit from its
     rates and rating rules. On or after January 1, 2022, the OIC shall disapprove an insurer's
     filing of rates and rating rules for any type of personal insurance that uses credit history to
     determine its rates unless the filing:
          • has the effect of removing credit history from the rates and rating rules for that type
            of insurance; or
          • was previously submitted to remove the use of credit history from its rates and rating
            rules.

     Appropriation: None.

     Fiscal Note: Requested on January 7, 2021.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: The bill contains several effective dates. Please refer to the bill.



Senate Bill Report                              -2-                                         SB 5010
     Staff Summary of Public Testimony: PRO: This bill promotes economic fairness and
     equity. Many people do not know their credit scores are used to determine their insurance
     rates. Racial inequities are imbedded in the credit scoring system. Women have lower
     credit scores because of the wage gap, and people of color have had barriers to
     accumulating wealth. Inequities and systemic racism are perpetuated by using credit scores.

     This bill will make it easier for people to become homeowners. In 2007, the Federal Trade
     Commission saw that insurance scoring unfairly affects people of color. Only a few
     decades ago, people of color were finally allowed to access good credit rather than relying
     on predatory lenders. You can still see these effects of redlining on communities of color in
     their credit scores today.

     There is a disproportionate impact of credit scores on drivers 55 years and older. This has
     to do with employment rates, and because they no longer have a mortgage and no longer
     use credit cards. Rates should be based on how a person drives. Credit scores are a flawed
     means of predicting the future and only reflects wealth. After a person has been insured
     three to five years, an insurance company should have enough data to set rates without the
     use of credit history.

     As a regulator, insurers should use factors that are closely associated with claims. Good
     public policy should incentivize good driving. Removing credit rating as a factor will have
     short term effects, like higher rates on some and lower rates for others depending on what
     their current rates are, but the rates should eventually stabilize.

     Credit scoring models are no different from insurance score models and it is subject to bias
     and errors. The Missouri Department of Insurance found that the single most predictive
     data element of regional average of insurance scores was the number of people of color in
     that zip code. Washington drivers with a "fair" credit score pay 35 percent more even
     though they never had a ticket or filed a claim and a driver with a "low" credit score may
     pay 79 percent more. This may mean over $500 more paid annually, on average, between a
     low credit score and high credit score driver.

     The higher rates opponents this bill suggests are a scare tactic. Insurance credit scoring
     undermines the loss prevention role of insurance and minimizes other risk behaviors. Good
     behaviors related to risk should be incentivized. Washington State has a high rate of
     uninsured drivers. Removing credit history in insurance scores will help. Massachusetts,
     California, and Hawaii, which have all passed credit score bans, have higher rates of insured
     drivers than Washington.

     CON: Fair treatment of all insureds is important to insurers. Mutual insurance companies
     are committed to objectivity and are committed to policy holders. In insurance,
     underwriting factors are fair if they promote accuracy. An insurance score includes history
     of payment and total debt, it does not include personal information such as race. Insurance
     scores provide objective information and are predictive of loss. Prohibiting insurance


Senate Bill Report                             -3-                                        SB 5010
     scores to use credit history will result in higher rates for all insureds. Insurers are required
     to file rates with the OIC and the rates must be justified.

     Today many companies can add telematic technology data to an insurance score. Telematic
     technology uses driving behaviors to determine risk for drivers. It has been observed that
     the correlation between risk-based insurance scores and driving behaviors is very high. The
     consumer impact on the removal of credit will penalize good drivers with good credit.
     Seniors would bear a heavy price if this bill were to pass.

     In the early 2000s, independent insurers were proponents of restrictions on the use of credit
     in insurance scores. Those restrictions are still in place and they work. By banning credit
     history in personal insurance rates, the use of credit overall will not be banned. National
     insurers can still use that information for marketing. This will lead to a competitive
     disadvantage to independent insurers. This bill will disrupt the marketplace for small
     independent insurers. Insurance scores help more than hurt and provide insurance
     companies more options for their customers. If credit history was banned insurance
     premiums will only go down if insurers were overcharging.

     When Alaska passed legislation prohibiting credit history in insurance scores a few years
     ago, many people received a higher rate on their insurance when their policy was renewed.
     Increases were between 10 to 20 percent. A similar impact would happen in Washington
     State if this bill were enacted. California is not a shining example; it has the 20th highest
     premiums for drivers while Washington has the 14th highest. Arkansas did a
     comprehensive study on insurance scores and over 60 percent benefited from the use of
     credit history.

     During the great recession, there was a big down swing in the economy, but rates based off
     insurance scores went down on average. It is assumed that credit scores are being damaged
     by the pandemic, but this is not true. Credit scores are rising during the pandemic. People
     are not taking out new loans or lines of credit. Insurance companies do not penalize people
     for their credit scores. There are 21 states which allow insurers to respond to extraordinary
     life circumstances, such as job loss, to make changes to their insurance scores. Washington
     State does not allow for this.

     Persons Testifying: PRO: Senator Mona Das, Prime Sponsor; Birny Birnbaum, Center for
     Economic Justice; Jon Noski, Office of the Insurance Commissioner; Eric Slavich, Office of
     the Insurance Commissioner; Douglas Heller, Consumer Federation of America; Mario
     Villanueva, Washington State Catholic Conference; Catherine West, Legal Voice; Ryan
     Donohue, Habitat for Humanity Seattle-King County; Shaun Scott, Statewide Poverty
     Action Network; Cathy MacCaul, AARP Washington State; Maria Siguenza, Commission
     on Hispanic Affairs; RaShelle Davis, Governor's Office; Armand MacMurray, citizen.

     CON: Anthony Cotto, National Association of Mutual Insurance Companies; Lars Powell,
     PhD, Alabama Center for Insurance Information & Research, University of Alabama; Mark


Senate Bill Report                              -4-                                          SB 5010
     Sektnan, American Property Casualty Insurance Association; Theodore Bell, Progressive
     Insurance; Bill Stauffacher, Independent Insurance Agents and Brokers of Washington;
     Tami Ellingson, Inspire Insurance Services Inc. DBA Hutson Insurance; Piilani Benz,
     Alliance West Insurance, Inc.; Roosevelt Mosely, Pinnacle Actuarial Resources, Inc.;
     Kenton Brine, North West Insurance Council.

     Persons Signed In To Testify But Not Testifying: No one.




Senate Bill Report                         -5-                                     SB 5010


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