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Washington State Judge Overturns Credit Scoring Ban

A Superior Court ruled that the Washington insurance commissioner lacks the statutory authority to unilaterally ban the use of credit information for rating and underwriting.
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washington state judge overturns credit scoring ban

A Superior Court judge ruled late last week that the Washington State Office of the Insurance Commissioner lacked the statutory authority to unilaterally ban the use of credit information for rating and underwriting.

The decision is a victory for the Independent Insurance Agents & Brokers of Washington (IIABW) and other insurance associations. The industry plaintiffs challenged a regulation promulgated by Washington Insurance Commissioner Mike Kreidler in February that would have prohibited insurers from utilizing credit history information in connection with the rating and underwriting of automobile, homeowners and renters coverage for at least three years. The petitioners argued that the commissioner exceeded his authority, and the court agreed.

The ruling is the latest turn in a longstanding and multi-year effort by the insurance commissioner to end the use of credit histories and information in his state. Kreidler has pursued legislation in the Washington Legislature on numerous occasions that would have replaced the longstanding statutory requirements that apply to the use of such factors with an outright prohibition. When his advocacy at the state legislature failed, the commissioner maintained that he already possessed the authority needed to implement such a ban and sought to do so by regulation. The chairman of the Washington State Senate Business, Financial Services, and Trade Committee described the change of direction and issuance of the rule as an “inexcusable attempt to evade and subvert the legislative process."

The judge's decision is the second time in less than a year the commissioner has been rebuffed by the courts. He initially sought to impose a similar ban with the issuance of an emergency rule in early 2021. That regulation was also challenged by the IIABW and the same coalition of industry groups and tossed aside by a state court several months later. The emergency rule produced chaotic marketplace effects in the short time it was in effect, with hundreds of thousands of consumers receiving rate increases as a result of the restrictions imposed on risk-based insurance pricing.

These recent events in Washington state are also an example of an emerging and troubling trend. Insurance officials in some states have exhibited an increased willingness to exceed their statutory authority and to unilaterally engage in the type of lawmaking that is reserved for state legislatures. Regulators in New York and numerous other jurisdictions, for example, have recently adopted expansive new marketplace requirements governing annuity transactions and sought to alter the legal standards of care that apply to agents selling annuities. Big I New York is challenging the annuities rule adopted by its officials, and oral arguments before the highest court in the state are scheduled to take place on Sept. 8.

It is unclear whether Kreidler will appeal last week's Superior Court ruling. He indicated in a released statement that he intends to consult with his attorneys and also hinted that any subsequent policymaking may be best left in the hands of lawmakers. Kreidler ironically stated that the decision “confirms that the best place to permanently address this issue is in the legislature." 

Wes Bissett is Big “I" senior counsel, government affairs.

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Thursday, August 11, 2022
On the Hill