Washington State Proposes a Ban on Credit Scores, But a Lawsuit Is Preventing Progress

In some states, your credit score is a factor when setting insurance rates. But having a credit-based insurance score can potentially hurt good drivers who happen to have not-so-great credit. Given the financial turmoil that many people have experienced during the public health emergency of COVID-19, Washington insurance commissioner Mike Kreidler advocated for change. He proposed to put a temporary halt on using credit scores for renter’s insurance, homeowners’ insurance, and auto insurance as of March 4, 2022. The credit score ban would likely affect most policyholders’ rates in some way. However, the rule didn’t go into effect and is in legal limbo due to a lawsuit, according to The Seattle Times. Currently, a hearing is requested for May. 

Washington credit based insurance score

A brief history of the credit score ban in Washington 

Mike Kreidler, who is the Insurance Commissioner in Washington, has proposed a credit score ban in Washington for several years. 

Last year on June 20, 2021, insurance companies were slated to no longer use credit scores to set rates for auto insurance and homeowners or renters insurance in Washington state.

The Washington state Office of the Insurance Commissioner issued an emergency rule in March 2021 to temporarily ban insurers from considering credit history to determine premiums and eligibility for personal property insurance. The new rule would be in effect for three years after the coronavirus pandemic is declared over.

Because of this change, many drivers (and homeowners or renters) would see new insurance premiums. 

Drivers who may have previously received a lower rate because they have a strong credit history could now see their auto insurance premiums increase because of the credit score ban. The opposite is true, too: Drivers may be due for lower auto insurance premiums if they have a lower credit score.

However, later in the year, the credit score ban was overturned by a judge. In February 2022, Kreidler adopted the rule again putting a halt to credit-based insurance scores and proposing a rule where insurers would be transparent and provide an explanation if there was a change in premium costs. But the rule didn’t go into effect as planned as it is being held up by a lawsuit.  

Insurers are concerned that this would raise insurance rates for millions of policyholders in Washington. Currently, there is not anything on the schedule to move forward but there is a requested hearing for May. 

Who would be impacted by Washington state’s credit scoring ban?

If the Washington state’s credit scoring ban goes into effect it would impact nearly all of the state’s residents with personal auto, homeowners, or renters insurance. 

The Washington state insurance regulator reports about 1.3 million people could expect a change in the premiums they pay for auto, homeowners, or renters coverage over time. 

Depending on someone’s credit history, this might mean someone would have to pay more or less for their insurance coverage when they renew their policies for another term. At this time, the move to eliminate credit-based insurance scores is on hold. 

How do insurance companies use credit scores?

Some insurance companies might use a credit-based insurance score as one factor to determine the rates they charge, often in addition to other factors.

If auto insurers consider credit, they might use it alongside factors such as a driver’s experience or history, accident or claims history, the type of car driven, or how far someone typically drives.

Additionally, insurance companies sometimes use similar credit-based insurance scores for homeowners’ and renters’ insurance.

Which states have credit scoring bans for insurance?

Washington state is not the first state to attempt to restrict insurance companies from using credit-based insurance scores.

California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, and Utah forbid insurance companies from using credit-based scores or someone’s credit history to set rates or make some underwriting decisions, such as canceling a policy, refusing coverage, or renewing a policy, for auto or homeowners insurance. Other states have temporary bans or are considering similar restrictions.

Why do insurance companies use credit-based scores to determine premium costs?

Insurance companies use different types of data to help make sure the premiums they charge are fair for consumers. 

They might use someone’s credit history as an additional data point to ensure their premiums are competitive and predictive of someone’s insurance risk. 

Credit-based insurance scores are designed to help insurers predict the risk of accidents or other claims.

What can I do to make sure I have a fair insurance rate?

Some consumer groups believe Washington state’s proposal to ban credit scores is a step in the right decision to ensure insurance is fairer for more people. 

You can also take steps on your own to get an equitable insurance rate. Pay-per-mile auto insurance considers how someone actually uses their car, notably how far someone drives or whether they drive often. 

As a result, drivers can earn and pay fairer auto insurance rates. Most car insurance companies charge drivers a flat rate for coverage each month or policy term. This approach to pricing can be problematic as it might not consider lifestyle changes as they occur, like if someone starts to work from home more often or replaces their driving with car-sharing, ride-sharing, or public transportation.

With pay-per-mile auto coverage, sometimes called pay-as-you-go or pay-as-you-drive insurance, drivers pay a low monthly fee to help keep their car covered and then a low per-mile rate, usually a few cents for each mile driven. Sometimes, there are caps on the miles charged. For example, Metromile doesn’t charge its customers for miles driven over 250 miles (or 150 miles in New Jersey) in a single day.

Is pay-as-you-drive auto insurance a good alternative?

Metromile, a leader in pay-as-you-drive auto insurance, uses technology to accurately and securely bill someone for the miles they drive. The company also uses this technology, sometimes called telematics technology, to understand someone’s driving behavior, such as how many miles are driven, the speed, or how drivers brake or make their turns.

If you’re not sure if Metromile or pay-per-mile is right for you, you can take a Ride Along™ trial for free. You’ll keep your current insurance provider but download the Metromile app and let Metromile ride along to learn how you typically drive.

The Metromile app will let you know how many miles you drive and how much you might save if you switched to Metromile at the end of your 17-day trial. If you demonstrate you’re a safe driver during the trial, you could also save up to an additional 15% off* your initial quote in select states.

Metromile also uses information from its telematics technology to determine if someone might qualify for additional discounts for safe driving or help drivers find their car if it’s ever lost or stolen and check on their car’s health.

The bottom line

Washington state recently proposed that insurance companies should stop using credit scores to determine how much someone should pay for auto, homeowners, or renters insurance. The state hopes the new rule will make insurance rates fairer for more people but the rule is currently in limbo. Regardless of what happens, you can take steps to get fairer insurance, even if you don’t live in Washington state or another state that bans the use of credit.

Drivers can choose a pay-per-mile car insurance policy, like Metromile, to help save money. According to a 2018 survey of new Metromile customers who saved, drivers who switched to Metromile saved an average of 47% a year. Most people are low-mileage drivers who don’t often drive or, more importantly, don’t drive long distances and could save with pay-as-you-drive coverage. If you drive less, then you should pay less. Find your free quote today. 

*Eligible drivers can save up to 15% on their initial quote with their safe driving in Oregon.