Credit score ban for insurance premium calculation leads to massive lawsuit


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American Property Casualty Insurance Association has filed a suit against the Washington regulator.

The American Property Casualty Insurance Association (APCIA) has filed a lawsuit against the regulator in Washington state over the ban against using credit scores for insurance premium calculation.

Commissioner Mike Kreidler issued an administrative ban against using that factor for underwriting policies.

The office of Commissioner Mike Kreidler defended its ban against using credit scores for insurance premium calculation. It released a statement calling the practice “inherently unfair” and that the ban protects customers.

The commissioner has repeatedly supported proposals to eliminate the use of credit scores among the factors insurers use for rating the risk associated with current or perspective policyholders. Kreidler has also backed proposals that would stop insurers from using it to determine how much a current or potential policyholder should pay for coverage.

The insurance premium calculation change came in the form of an emergency order.

The Washington legislature stalled a bill in the Senate that would ban the use of a customer’s credit history for policy underwriting. Kreidler responded on March 22 by issuing an emergency order that would prohibit the practice. This regulation applies to calculating the amount consumers will pay for private renters, homeowners and auto insurance policies.

APCIA has been vocal about its opposition to the emergency order since it was first issued. The trade group has now announced that it is taking legal action, referring to the emergency order as an “extreme” intervention, and accusing the regulator of “abuse of authority”. According to APCIA, the move will result in increased rates for more than one million consumers in Washington state.

The majority of consumers save money on their insurance premium calculation when their credit score is applied, said APCIA senior vice president and general council Claire Howard.

Insurance premium calculation - law - gavel“Insurance scores are not credit scores like the ones used by banks to offer loans or credit cards,” said Howard in the statement released about the APCIA legal action against the regulator. “Insurers use specific information about how consumers use credit as one factor to give consumers the most affordable and accurate rate.”

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