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Financial Services Law Insights and Observations

Industry group sues to stop Washington’s emergency rule banning credit scoring in insurance underwriting

State Issues State Regulators Covid-19 Credit Scores Insurance Underwriting Courts CARES Act

State Issues

On April 8, the American Property Casualty Insurance Association (APCIA) filed a lawsuit in Washington Superior Court in an attempt to stop an emergency rule issued last month by the Washington Insurance Commissioner, which bans the use of credit-based insurance scores in the rating and underwriting of insurance for a three-year period. The rule specifically prohibits insurers from “us[ing] credit history to place insurance coverage with a particular affiliated insurer or insurer within an overall group of affiliated insurance companies” and applies to all new policies effective, and existing policies processed for renewal, on or after June 20, 2021.

According to a press release issued by the Commissioner, the emergency rule is intended to prevent discriminatory pricing in private auto, renters, and homeowners insurance in anticipation of the end of the CARES Act, which will expire 120 days after President Biden declares an end to the national emergency caused by the Covid-19 pandemic. Under the CARES Act, Congress required furnishers of information to credit bureaus to modify credit reporting practices if and when they grant an “accommodation”—that is, an agreement to defer payments, modify a loan, or grant other relief—to borrowers impacted by the Covid-19 pandemic, irrespective of asset type to ensure that borrowers who sought and obtained forbearance or other relief were not credit reported as becoming delinquent or further delinquent as a result of the forbearance or other relief (see Buckley Special Alert), which the Commissioner believes has disrupted the credit reporting process and reportedly caused credit bureaus to collect inaccurate credit histories for some consumers. The Commissioner further contends that because “the predicative ability of current credit scoring models cannot be assumed,” scoring models used by insurers to set rates for policyholders have been degraded and will have a disparate impact on consumers with lower incomes and communities of color. Sources report that APCIA’s lawsuit—which seeks declaratory and injunctive relief (and asks the court to declare the Commissioner’s rule invalid and to enjoin its enforcement)—claims the Commissioner’s rule will harm insured consumers in the state who pay less for auto, homeowners, and renters insurance because of the use of credit-based insurance scores to predict risk and set rates.

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