Last week, you heard here that Governor Jay Inslee and Insurance Commissioner Mike Kreidler want to ban the use of credit scores by insurance companies. Their two, flawed arguments are that credit scores arenâ€™t “fair” and aren’t correlated to insurance losses (they are) and that credit scores are racist (they arenâ€™t).
Credit scores are used everywhere, from job applications to dating. So, I wondered, is the State of Washington pulling credit scores of job applicants at the same time they are trying to ban private insurers from doing the same thing? Surely the State of Washington wouldnâ€™t resort to this â€œracistâ€ practice in hiring for state positionsâ€¦
Good for me, but not for thee
Iâ€™m not an investigative reporter, but even just doing a cursory view of Washington State openings reveals official state jobs that require passing a credit check. Here are a couple of examples (not exhaustive):
A search for â€œcreditâ€ on the Washington State jobs site comes up with 61 jobs. While not all of them require a credit check, many of them do. And I was surprised to find out that itâ€™s not just for financial-related jobs like the Department of Financial Institutions. Even the Washington State Liquor and Cannabis Board requires credit checks for positions that pay as little as $54k per year.
Credit Does Matter
The reality is that credit DOES matter. Thatâ€™s why itâ€™s one of the top predictors for insurance losses â€“ sometimes more predictive than an accident or a DWI. Using credit scores actually benefits consumers, because 3-years of accident and claim data is woefully insufficient to properly determine the appropriate risk and premium to charge. A study by the Arkansas Insurance Compliance Department found that the use of credit scores reduces the premiums for the majority of those insured. The 2017 study found:
â€œ80% of consumers whose premium involved a credit component either received a lower premium or their premium was unaffected. Overall 54.5% of consumers received some decrease in their premium as opposed to only 19.8% who received some increase in their premium.â€
It matters outside of insurance as well â€“ thatâ€™s why itâ€™s used for employment, renting an apartment, and even dating. Itâ€™s logical too. If you canâ€™t manage your personal finances and pay your bills on time, why should an employer trust you to do work on their behalf? If you donâ€™t pay your bills on time, what does that mean for a potential landlord?
Shape Up, Washington State
Itâ€™s hypocritical to attempt to ban private insurance companies from using credit scores while simultaneously using credit scores to screen State employees. Itâ€™s time to abandon this failed policy proposal that will increase insurance premiums, decrease competition in insurance, and increase the number of uninsured drivers.
And shame on Jay Inslee and Mike Kreidler. If youâ€™re going to propose an asinine policy like this, at least do the legwork and make sure youâ€™re not using these “racist” and “unfair” credit scores elsewhere in the state.