Prohibiting the use of credit scoring in insurance
The Office of the Insurance Commissioner is requesting legislation to ban the insurance industry’s use of credit scoring in setting premiums for auto, homeowner, renter, boat and life insurance. The reason for this change in state law is simple: The use of credit-based insurance scores has historically and disproportionately penalized communities of color and low-income communities through inequities embedded in our credit system.
Ample studies indicate that low-income people in Washington state are more likely to struggle with their credit and pay higher insurance premiums for reasons that have nothing to do with their insurance risk. Data indicates that communities of color are disproportionally represented in low-income demographics and saddled with higher insurance premiums.
A 2015 report by the Consumer Federation of America showed that, on average, drivers with a good credit score paid $214 more per year than drivers with the best credit score, without factoring in their driving record. The study also found that in Washington state, drivers with excellent credit and a conviction for driving under the influence (DUI) paid $847 less in premiums than a driver with a clean driving record and poor credit.
In recent months, the insurance industry voiced overwhelming support for action to promote racial and economic justice. By supporting this legislation, the industry has the opportunity to put that support into action to end the discriminatory practice of using credit scoring to set insurance premiums.
- The comment period for the stakeholder draft is open until Oct. 26, 2020.
- Please submit written comments to the rules coordinator.
- Tuesday, Oct. 27, 2020 at 11:00 a.m.
- Location: Zoom
- Please register in advance via Zoom.
Ensuring equity in the Insurance Guaranty Association Act
Looming insolvencies of long-term care insurance companies threaten the benefits that are due to Washington state policyholders. If the Legislature does not amend the law and add assessments to the Insurance Guaranty Association to protect consumers, the state general fund may suffer a prolonged, negative fiscal impact.
For the second consecutive year, Insurance Commissioner Mike Kreidler is proposing legislation to expand assessments to protect Washington state policyholders and the general fund.
Based on a model law developed by the National Association of Insurance Commissioners, the OIC’s proposed legislation provides an equitable allocation of assessments (50/50 split) among all life and disability insurers, health plans and HMOs.
The OIC’s legislation expands membership in the Insurance Guarantee Association to include health plans and HMOs.
Updating the definition of insurance adjusters
The definition of adjuster in RCW 48.17.010(1) may include non-insurance professionals who also provide important information and services to insurance companies or policyholders during the claim process.
The OIC is recommending amending state law:
- To allow insurance professionals who adjust property and casualty insurance claims to continue to require adjuster licensure. The amendment will clarify that non-insurance professionals who only provide damage evaluation on insurance claims are not required to be licensed as an adjuster.
- To clarify that an appraiser or umpire functioning under the contractual appraisal clause in the policy is not deemed an adjuster for the purposes of this chapter. This clause has caused confusion and clarifying it will aid the OIC’s regulatory efforts.
- To require continuing education for adjusters. Doing so benefits insurance consumers, provides interstate reciprocity benefits for adjuster licensees and mirrors practices in other states.
- To allow emergency nonresident independent adjusters to operate in Washington state only after the governor has declared an emergency and only if they have already registered with the OIC. This practice is in effect in many states and follows the state licensing guidelines established by the National Association of Insurance Commissioners.
Improving the reliability of reinsurance
The National Association of Insurance Commissioners (NAIC) recently adopted the Credit for Reinsurance model law that provides guidance to reinsurers about the application of the credit for reinsurance (a statutory accounting principal) as well as expands the requirements to license non-U.S. insurers. In order to maintain national accreditation and avoid federal pre-emption to license non-U.S. insurers, the OIC must pass the model law before September 2022.
A credit for reinsurance is a statutory accounting procedure that permits a ceding company (the company giving the credit away to another company) to treat amounts due from reinsurers as assets or reductions from liability based on the status of the reinsurer. Reinsurance credit procedures allow an insurance company to treat money owed by reinsurers for covered losses as assets.
Captive insurance study
A captive insurer is an insurance company that is controlled by its insured. Its primary purpose is insuring the risks of its owners or members. Forms of captive insurance include pure captives (owned by a single entity, including micro-captives), group captives (owned by a group of entities), sponsored captives and agency captives.
Washington state law does not have a regulatory framework for captive insurance companies that insure Washington-state risks. Captive insurance is considered unauthorized insurance in Washington. Because state law lacks a clear way to regulate captives, they operate with no regulatory oversight and do not pay premium taxes like all other insurers do. Premium tax revenue goes to the general fund to pay for schools, human services and general state government operations. The OIC estimates the state is missing millions of dollars in revenue by not taxing captive insurers.
The OIC and the state Department of Revenue contracted with Seattle-based Milliman, Inc., to conduct a survey and study to help understand the captive insurance market in Washington. The OIC will report results of the study to the Legislature in Fall 2020 to assist with establishing a fair and equitable framework for lawful captive insurance activity in our state.