A bill has passed the Washington state Senate that would require a study on how insurance companies use credit history, credit-based insurance scores, and other rate factors to set premiums.

Senate Bill 5589, proposed by Insurance Commissioner Patty Kuderer and sponsored by Sen. Bob Hasegawa (D-Seattle), requires the study by the Office of the Insurance Commissioner (OIC), which would also explore alternatives to credit scoring that companies could use to determine premiums.

“Companies are using algorithms and technology [at] an increasing rate to determine premiums,” said Kuderer, in a press release. “It’s my role to make sure none of those decisions are discriminatory, and the data we’ll gather with this study helps us make that determination.”

The bill states that current rating factors “may be impacting Washington residents in unintended or unacceptable ways.”

The study would also identify and analyze alternative rate factors that could be used to determine premiums, rates, and eligibility for coverage, according to the bill.

Insurance companies doing business in Washington state can use a person’s credit history to set premiums for personal lines of insurance, such as home, auto, liability, and theft coverage. State law requires all rates and rating plans to be approved by the OIC before they’re used.

State law also states insurance rates must not be excessive, inadequate, or unfairly discriminatory.

The bill requires a preliminary report to be delivered to the legislature by Dec. 31, and a final report by Sept. 15, 2026 with review findings, policy options, and recommendations regarding allowance, prohibition, or contingent use of credit history, credit-based insurance scoring models, and other impactful rating factors as well as alternatives to their use.

During a Feb. 6 public hearing on the bill, Ranking Committee Member Sen. Perry Dozier (R-District 16) noted that an emergency rule enacted by Mike Kreidler, the state’s previous commissioner, barring the use of credit scores, caused increased insurance premiums for elderly residents with good credit scores. OIC representatives agreed they received complaints about those increases.

Lobbyist Kris Tefft, on behalf of the American Property Casualty Insurance Association, testified that the study required by SB 5589 would be redundant because at least 15 similar major studies on credit-based insurance scoring have been conducted across the country since 2005.

“Given this extensive body of research, it is reasonable to consider whether another study will produce new insights or simply repeat what has already been well examined,” he said. “We stand willing to work with the committee with the commissioner on the design of this [study] going forward.”

Kenton Brian, president of the Northwest Insurance Council, said the way in which the study is carried out as proposed in the bill should be tweaked. For example, a study in Oregon will be designed and developed in a “public-facing monthslong stakeholder-involved hearing process” and will gather data for at least two years.

“We believe that studying complex issues works best when stakeholders with expertise can directly contribute their knowledge to the effort,” he said. “With that in mind, we’d like to have the opportunity to work with the commissioner and staff and with this committee on amendments to the bill that will ensure a transparent process, an objective unbiased study and balance recommendations that are based on well-informed data and actuarial science.”

In support of the bill, Michael DeLong, research and advocacy associate with the Consumer Federation of America, said the study would provide badly needed information about the unfair impact of socioeconomic factors on consumers and insurance.

“It’ll encourage the development of policies that more fairly and accurately price insurance,” he said. “In our 2023 report on the impact of credit history on auto insurance premiums, we found that Washington good drivers with excellent credit paid an average annual premium of $397. But if those drivers had fair credit, they paid $572, a 44% increase, and drivers with poor credit paid $769 on average, nearly double what was charged to the drivers with excellent credit.

“We found that auto insurers charge people more if they don’t have a college degree, if they work at blue collar jobs, and if they still live in certain zip codes. Those surcharges add up rapidly. A driver could pay a surcharge because they’re a cashier, another surcharge because they have a high school diploma, another surcharge because they rent, and then another surcharge because of their credit.”

Based on Consumer Reports (CR) research, the insurance industry hasn’t demonstrated a direct causal relationship between credit history and auto insurance premiums, according to Charles Bell, CR financial policy advocate.

“We’re also very concerned about the quality of data that is used to make these determinations because many credit reports have substantial errors and also sometimes consumers have impaired credit because of circumstances that are way beyond their controls, such as a plant closure or a medical illness or an injury that does not automatically make them a terrible driver,” he said.

“We think a study looking at these issues is very much in the public interest and would help the drivers that are living paycheck to paycheck that are having trouble affording insurance, let’s make sure that the rates are fair, then they’re based on fair data.”

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