Washington is Working to Outlaw this Controversial Car Insurance Practice

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Washington State has banned insurance companies from using credit scores as a factor for determining home, renters, and car insurance premiums.
Mike Kreidler, the state’s insurance commissioner, instilled the three-year ban in March while the government works to turn it into permanent law.
According to Insurance News Net, Kriedler also wrote a letter to the other members of the National Association of Insurance Commissioners, urging his colleagues to adopt similar bans and legislation. With the ban in place, Washington has joined a growing number of states who have banned or limited the questionable price-controlling practice.
Cars driving down a highway in Washington state
Washington could be the next state to ban using credit scores to help decide car insurance rates | Twenty20

Why Washington is banning credit scores in insurance

The commissioner’s actions are in response to data released from the Consumer Federation of America (CFA) showing that Washington drivers pay 35%-79% more on their car insurance if they have Fair or Poor credit scores, regardless of their driving records.
“By punishing drivers with clean driving records but less than perfect credit, the insurance companies make coverage more expensive for those least able to afford it,” said Doug Heller, CFA’s Insurance Expert. “Because systemic biases have made credit less available to people of color, this insurance industry practice perpetuates structural racism.”

How your credit score could affect your car insurance

Usually, credit scores are used to predict whether you will be able to pay back loans or purchase products over time through financing agreements. Since insurance companies only offer you services once you’ve paid for them, it might seem odd that insurance companies pay attention to credit scores.
But insurance providers determine your insurance premiums based on calculated risk, and studies show that drivers with low credit scores are more likely to be involved in car accidents.
In other words, if your credit score is low, insurance companies are more likely to lose money by covering you. To make up for that potential loss, they raise your premiums—the lower your score, the more you pay.
Depending on where you live and what kind of credit score you have, you could pay double what someone with an excellent score, even if every other factor is the same.

States where credit-based insurance is limited or banned

Washington is only the latest state to ban the insurance industry from using credit scores as a factor for determining rates. The four other states have already outlawed the practice:
  • California
  • Hawaii
  • Massachusetts
  • Michigan
The New Jersey Senate voted to ban credit scoring by insurance companies in January. According to New Jersey Insider, the bill awaits a hearing by the state’s Assembly Financial Institutions and Insurance Committee. Full bans are also in the works in Oregon and Louisiana.
There are already limits on how your credit score can affect your insurance in Oregon. Insurance companies can’t deny your application or refuse to renew it based on your credit score. Similar laws also exist in New York and Utah.

Navigating state car insurance laws

Car Insurance laws change drastically from state to state. In Virginia and New Hampshire, you’re not even legally required to have auto insurance!
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