Many seniors on fixed incomes have spent their lives prepaying their possessions. They have paid off their debts and rely less on credit. Some may now have lower credit scores because of the unscrupulous way the credit bureaus classify people who regularly rely on credit and loans, versus those who have paid off their debts. Is it fair that they pay more for home or auto insurance?
Lost in the recent talk about an emergency rule that bans insurance companies from using your credit score, it’s a simple truth: the industry is already on the verge of ditching this outdated and unfair method for determine what you are paying to protect your car and your home. In fact, they could do it today.
The insurance industry wants you to believe its hands are tied by an emergency rule established by the Office of the Insurance Commissioner last March. But their lobbyists, the American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies, never mention that insurers could use dozens of other more reliable risk factors to determine your premiums.
Instead, they want you to believe that your credit score reflects your self-esteem. And that if you have a low credit score, you have to earn it.
They also never mention that three other states, including California, already ban the use of credit scores and yet insurers remain profitable there. They earn money based on other risk factors including how you drive and how many claims you have made.
But here in Washington, they want to keep a practice that they have relied on for over 20 years and which punishes low income people, including the elderly, whether or not they have a good driving record and have never filed a complaint.
Lately, the tide is turning. Some companies are ditching the use of credit scores and relying on something that makes sense: tracking your actual driving habits. This is called telematics.
There are legitimate privacy concerns with telematics, and not everyone would be comfortable with this surveillance. Certainly, appropriate guardrails are necessary. But the effort shows that some insurers are willing to consider truly reliable rating tools.
There are other innovative ideas that could benefit consumers, but this assumes that insurers are serious about helping all policyholders. This is especially true for the elderly. Insurers regularly increase premiums based on age and even benefit from their long-standing loyalty by never offering them better rates.
We need to address the root causes of insurance claims. Credit scores don’t cause accidents. It is disheartening to hear some lawmakers abandon logic and tell people to focus on their credit scores rather than their driving behavior. Credit scores are a tool of the financial industry – and now the insurance industry. He uses those scores to sell more policies to the people he really wants to insure.
But what does a credit score have to do with how you, whether you’re a senior or a young adult, drive your car or treat your property? There are many reasons people have low credit scores, including natural disasters, medical bankruptcy, or lack of access to credit institutions. The impact of this inequity can span generations.
We are pleased to have the opportunity to encourage innovation in the insurance industry. At a time when opinions are largely polarized and fueled by deliberate disinformation, we know that collaboration with insurers is necessary for long overdue reforms. It will involve lawmakers, regulators and savvy consumers like us to create clear, consistent rules that create a system that is fair to everyone, regardless of your credit score.
We are ready to work with insurers and legislators who are ready to embrace fairness and do the right thing for the insured. Let’s get started.
Kreidler’s rule banning credit scoring has a virtual public hearing, at 9:30 a.m. on Tuesday, November 23, and airs on TVW.