Report - 2025 02 20 A32829 D281494 Bill Report 5589 Sbr Bft Ta 25

Summary

A Washington Senate Bill Report on SB 5589, as of February 6, 2025, prepared for the Senate Committee on Business, Financial Services & Trade, on a bill to study credit history, credit-based insurance scores and other rate factors in personal insurance rates. The bill is sponsored by Senators Hasegawa, Kauffman, Lovelett, Nobles, Saldaña, Stanford and Wilson, C., by request of the Insurance Commissioner. The background describes current law, OIC emergency rules of March 2021, a permanent rule of February 2022, and a Thurston County Superior Court order of August 2022 declaring that rule invalid. The bill requires the OIC to collect insurer data, contract with actuaries, and report to the Legislature by December 31, 2025 and September 15, 2026; the section expires December 31, 2033. The report closes with a staff summary of public testimony.

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                            SENATE BILL REPORT
                                  SB 5589

                                      As of February 6, 2025

Title: An act relating to conducting a study of credit history, credit-based insurance scores, and
     other rate factors that may disparately impact Washington residents, in making rates for
     personal insurance.

Brief Description: Conducting a study of credit history, credit-based insurance scores, and
     other rate factors in making rates for personal insurance.

Sponsors: Senators Hasegawa, Kauffman, Lovelett, Nobles, Saldaña, Stanford and Wilson, C.;
    by request of Insurance Commissioner.

Brief History:
     Committee Activity: Business, Financial Services & Trade: 2/06/25.


                                     Brief Summary of Bill
           • Requires the Office of the Insurance Commissioner (OIC) to conduct a
             study of insurers' use of credit history, credit-based insurance scores,
             other rate factors that may have disparate impacts on Washington
             residents, and alternatives to their use, for certain purposes.
           • Requires authorized insurers transacting personal insurance to provide
             requested information to the OIC, and provides for confidentiality,
             privilege, and a public records exemption for the data.
           • Authorizes the OIC to contract with actuaries and other consultants for
             the study.
           • Requires reports to the Legislature with findings, policy options, and
             recommendations.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE




     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.

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     Staff: John Kim (786-7453)

     Background: Insurance Rate Standard. Current law provides that premium rates for
     insurance may not be excessive, inadequate, or unfairly discriminatory.

     Use of Credit History or Insurance Scores in Making Personal Insurance Rates. Under
     current state law, each insurer that uses credit history or an insurance score to determine
     personal insurance rates, premiums, or eligibility for coverage must file all rates and rating
     plans for that line of coverage with the Office of the Insurance Commissioner (OIC).

     A person's credit history is any written, oral, or other communication of any information by
     a consumer reporting agency bearing on that person's creditworthiness, credit standing, or
     credit capacity that is used or expected to be used, or collected in whole or in part, for the
     purpose of serving as a factor in determining personal insurance premiums or eligibility for
     coverage.

     A person's insurance score is a number or rating that is derived from an algorithm, computer
     application, model, or other process that is based in whole or in part on credit history.

     The definition of personal insurance under the state law includes:
        • private passenger automobile coverage;
        • homeowner's coverage, including mobile homeowners, manufactured homeowners,
          condominium owners, and renter's coverage;
        • dwelling property coverage;
        • earthquake coverage for a residence or personal property;
        • personal liability and theft coverage;
        • personal inland marine coverage; and
        • mechanical breakdown coverage for personal auto or home appliances.

     An insurer may not use the following types of credit history to calculate a personal
     insurance score or to determine personal insurance premiums or rates:
         • the absence of credit history or the inability to determine the consumer's credit
           history, unless the insurer has filed actuarial data segmented by demographic factors
           in a manner demonstrating compliance with the general rate standard described
           above;
         • the number of credit inquiries;
         • credit history or an insurance score based on collection accounts identified with a
           medical industry code;
         • the initial purchase or finance of a vehicle or house that adds a new loan to the
           consumer's existing credit history, if evident from the consumer report; however, an
           insurer may consider the bill payment history of any loan, the total number of loans,
           or both;
         • the consumer's use of a particular type of credit card, charge card, or debit card; or
         • the consumer's total available line of credit; however, an insurer may consider the


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            total amount of outstanding debt in relation to the total available line of credit.

     If a consumer is charged higher premiums due to a disputed credit history, the insurer must
     rerate the policy retroactive to the effective date of the current policy term. As rerated, the
     consumer must be charged the same premiums they would have been charged if accurate
     credit history was used to calculate an insurance score. These requirements apply only if
     the consumer resolves the dispute pursuant to the federal Fair Credit Reporting Act and
     notifies the insurer in writing that the dispute has been resolved.

     Rules by the Office of the Insurance Commissioner and Rule Challenge. In March 2021, the
     OIC adopted emergency rules prohibiting the use of credit history by insurers in
     determining homeowners', renters, and private passenger automobile insurance rates,
     premiums, or eligibility for coverage or in placing coverage with an affiliated insurer. The
     emergency rules applied to new policies issued and existing policies renewed beginning in
     June 2021.

     In February 2022, the OIC adopted a permanent rule specifying that the prohibition would
     remain in effect for three years following the later of the President's COVID-19 national
     emergency declaration on March 13, 2020, or the day the Governor's proclamation of a state
     of emergency regarding COVID-19 expired.

     In adopting the rules, the OIC cited changes in the federal Coronavirus Aid, Relief, and
     Economic Security Act relating to credit reporting during the pandemic, forbearance options
     for certain loans, and a moratorium on foreclosures. The OIC made a finding that credit
     reporting processes were disrupted and therefore credit-based insurance scoring models
     were unreliable under state law.

     The validity of the permanent rule was challenged in a petition for declaratory and
     injunctive relief filed by the National Association of Mutual Insurance Companies in
     February 2022 in Thurston County Superior Court. The action was consolidated with
     another petition filed by the American Property Casualty Insurance Association, the
     Professional Insurance Agents of Washington, and the Independent Insurance Agents and
     Brokers of Washington. In August 2022, Thurston County Superior Court issued an order
     declaring that the rule exceeded the OIC's statutory authority and that the petitioners were
     substantially prejudiced by the rule, and therefore the rule was invalid. The OIC did not
     appeal the decision.

     Summary of Bill: Study by the Office of the Insurance Commissioner. The bill requires
     the OIC to conduct a study of insurers' use of credit history, credit-based insurance scores,
     other rate factors that may have disparate impacts on Washington residents, and alternatives
     to their use, in determining personal insurance premiums, rates, or eligibility for coverage,
     and the associated impacts to consumer costs and the availability of insurance.

     In conducting the study, the OIC must collect information from authorized insurers


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     transacting personal insurance, who must provide the requested information to the OIC.
      The OIC must investigate and obtain any other relevant information that may assist the
     OIC with the purposes of the study.

     The OIC must also contract with actuaries and other consultants, as needed, to:
        • analyze insurers' use of credit history, credit-based insurance scoring models, or other
          rate factors that may disparately impact Washington residents, in determining
          premiums, rates, and eligibility for coverage for people of various races, ethnicities,
          sexes, socioeconomic status, and national origins;
        • identify and analyze alternative rate factors that could be used to determine
          premiums, rates, and eligibility for coverage that neither rely on credit history or
          credit-based insurance scoring models, nor disparately impact Washington residents
          of various races, ethnicities, sexes, socioeconomic status, or national origins;
        • analyze the likely impact of the above factors on consumer costs, rates, premiums
          eligibility for coverage, and availability of insurance for people of various races,
          ethnicities, sexes, socioeconomic status, and national origins; and
        • develop for legislative consideration policy options and their likely impacts on
          consumer costs, premiums, rates, eligibility for coverage, and the availability of
          personal insurance, of use of rate plans that include and exclude credit history, credit-
          based insurance scoring models, or other rate factors that may have a disparate impact
          on Washington residents.

     Report to the Legislature. The OIC must submit a preliminary report to relevant legislative
     policy committees by December 31, 2025, and a final report by September 15, 2026, with
     review findings, policy options, and recommendations regarding:
         • allowance, prohibition, or contingent use, of credit history, credit-based insurance
           scoring models, other disparately impactful rating factors, and alternatives to their
           use, for personal insurance; and
         • the associated impacts on consumer costs, premiums, rates, eligibility for coverage,
           and availability of insurance for people of various races, ethnicities, sexes,
           socioeconomic status, and national origins.

     Confidentiality, Privilege, and Public Records Exemption. Data requested by, or provided
     to, the OIC and the OIC's contracted consultants for the purpose of complying with the
     study and reporting requirements is confidential, privileged, and exempt from public
     disclosure under the Public Records Act.

     The OIC may prepare and publish reports, analyses, or other documents using the data so
     long as the data is in aggregate form and does not permit the identification of information
     related to individual companies. Data in the aggregate form is deemed open records
     available for public inspection.

     Expiration. The section in the Revised Code of Washington created by the bill expires
     December 31, 2033.


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     Appropriation: None.

     Fiscal Note: Available.

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

     Effective Date: Ninety days after adjournment of session in which bill is passed.

     Staff Summary of Public Testimony: PRO: We want the information to ascertain whether
     there are disparities within the insurance rating system and whether they are justifiable. This
     bill gives the OIC a mandate to make sure insurance rates are being fairly set without the
     use of surrogate data like what zip code you live in or what your income level is as opposed
     to your experience rating.

     The bill will direct the OIC to conduct a study of how credit history and other rating factors
     like gender, occupation, or education are currently being used by insurers. The intent is to
     provide legislators and policymakers with data points on the impact of these rate factors and
     underwriting practices on Washington consumers. State legislatures across the country have
     taken varying stances on the issue. In homeowners' insurance, there are typically 30 to 40
     different buckets of rate factors considered. The credit-based insurance score, which
     includes nonpublic components of rate factors, often includes items not associated with
     credit including education and occupation. For auto, there are also a number of different
     factors considered.

     The bill will provide badly needed information about the unfair impact of socioeconomic
     factors on consumers. Our research found that insurance companies use socioeconomic
     factors that result in consumers getting charged higher premiums, especially in auto and
     homeowners' insurance. In our 2023 report, we found that Washington drivers with
     excellent credit paid an average annual premium of $397, while drivers with fair credit paid
     an average of $572 and those with poor credit paid an average of $769. We found auto
     insurers charged more if people don't have a college degree, work in blue-collar jobs, or live
     in certain zip codes or are renters.

     Consumer Reports did a research project on the impact of credit history on auto insurance
     premiums and found it had a very large impact, such that you could be an excellent driver
     but have high premiums if you have fair or poor credit. We do not believe the insurance
     industry has determined a direct causal relationship. We're also concerned about the quality
     of data due to substantial errors in credit data. Insurance credit scores are secret and
     proprietary and the consumer cannot get a look at how their premium is being determined.

     OTHER: The inclusion of other rating factors is a very open-ended term. Without being
     fully and properly defined, it should not be included in the bill. The National Association of
     Mutual Insurance Companies' members ask the committee to consider placing the study
     with an outside disinterested study, such as a university or professional group. Proper


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     sideboards should be in place regarding the collection of data. Data calls are very expensive
     and are labor-intensive.

     Credit-based insurance scoring has been one of the most researched and studied topics in all
     of insurance regulation recently. Since 2005, at least 15 major studies have been conducted
     across the United States, five by state insurance regulators, one by the District of Columbia,
     three by federal agencies or independent research groups, and six by universities and
     industry experts. These studies span more than two decades and have examined every major
     policy concern surrounding credit-based insurance scores. It is reasonable to consider
     whether another study will produce new insights or simply repeat what has already been
     well-examined.

     In Oregon, the insurance commissioner is proposing to initiate a study on the rating factors
     affecting auto insurance. One difference is that the Oregon study will be designed and
     developed in a public-facing, stakeholder-involved hearing process that will gather data for
     at least two years. We would like the opportunity to work on amendments that will ensure a
     transparent process and an objective and unbiased study.

     Persons Testifying: PRO: Senator Bob Hasegawa, Prime Sponsor; Michael DeLong,
     Consumer Federation of America; Charles Bell, Consumer Reports; Rory Paine-Donovan,
     Office of the Insurance Commissioner; David Forte, Office of the Insurance Commissioner.

     OTHER: Kris Tefft, American Property Casualty Insurance Association; Kenton Brine, NW
     Insurance Council; Brandon Vick, National Association of Mutual Insurance Companies.

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




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