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Wash. regulator calls out NAIC decision-making, insurers' use of credit scores

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Wash. regulator calls out NAIC decision-making, insurers' use of credit scores

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Washington Insurance Commissioner Mike Kreidler speaks before the National Association of Insurance Commissioners during one of its national meetings.
Source: National Association of Insurance Commissioners.

➤ The National Association of Insurance Commissioners (NAIC) often has difficulty reaching a consensus on sensitive issues leading to decisions that are not always "appropriate," Washington's top insurance regulator said.

➤ Washington's insurance commissioner says insurers' use of credit scores in underwriting is a form of "redlining."

➤ Some insurers have told Washington's outgoing insurance regulator that they believe using credit scoring is unfair, but they must go along with it since their peers utilize it.

Washington Insurance Commissioner Mike Kreidler is one of the longest-serving elected insurance regulators in the country. After serving in his current role for more than two decades, he recently announced that he will not seek reelection this fall.

S&P Global Market Intelligence recently caught up with Kreidler to talk about the high and low points of his career, and the issues he has tackled, such as climate change's impact on insurance and the use of credit scores in personnel lines underwriting. The following conversation was edited and condensed for clarity.

S&P Global Market Intelligence: As you look back over the course of your career, what are some of the things that you're most proud of accomplishing?

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After more than two decades in his role, Washington Insurance Commissioner Mike Kreidler will not seek reelection this fall.
Source: Washington State Office of the Insurance Commissioner.

Commissioner Mike Kreidler: I have to say that being able to take the Affordable Care Act and see it fully implemented in the state of Washington, and playing a very active leadership role with that would certainly be No. 1 in my book of accomplishments.

From when I came into office, we had about 15% of the state's population that did not have health insurance, we're down to 5% today. This is a very marked improvement. There's a lot to be done, but at the same time, getting those numbers aligned was by far the most important and most significant task.

The other accomplishments would have to be on climate, climate change, and playing an extremely active role both at the national level and even internationally on the issue of climate change, and making that an issue that is important to the insurance regulators.

We've come a long way from where we struggled to even try to do a survey that the NAIC was reluctant to accept, being that they did not want to put it out under their name. It had to be done privately by a couple of states, notably Washington and California, because it was too difficult to reach a consensus. That's certainly one of the challenges for the NAIC. It tends to be so consensus driven that sometimes you're not making appropriate decisions going forward by virtue of the fact that they have to have so much unanimity on topics.

When it came to climate we were really afforded a great opportunity to provide leadership so that we were identifying systemic risk to the insurance industry. We have a chance now to require that insurance companies file and respond to questionnaires relative to the types of investments and structures that they have so that we have a much better understanding of what the insurance companies are doing in the face of climate change.

You said sometimes it's been hard for the NAIC to make appropriate decisions because they operate on the basis of having consensus on issues. Are there other important issues outside of climate where progress has been hindered because of that?

Oh, it comes up not infrequently. It's very difficult to ever get them to take a hard position on any issue that has some controversy associated with it.

In this day and age with the kind of politics we're seeing, it's pretty hard to avoid not having some conflict here. Look at the NAIC and its structure too. Only 11 insurance commissioners are elected, all the rest are appointed usually by governors. In that vein, they're going to be very susceptible to the politics of that state. They're going to want to make sure that they're not running afoul [of the] people who put them in their position to be the insurance commissioner. That makes it much more difficult then to develop that kind of consensus on any issue that has any kind of controversy associated with it.

What is the biggest challenge you've faced in your career as insurance commissioner?

Trying to deal with the issue of credit scoring in personal lines.

When I became an insurance commissioner 24 years ago, at that point, credit scoring was just being introduced. It's not been around forever, it's a fairly recent development, and it was one that personal lines insurance companies, particularly publicly traded insurance companies in personal lines, gravitated to because they saw it as an opportunity to make a buck. They could reduce the number of people involved in their underwriting, judging the risks on individuals, and use a simplistic tool like their credit score.

In some cases, you could even have a DUI, driving while intoxicated, on your record and still pay less than the person across the street who carries a lot of medical debt or debt for other reasons.

It's really, really sad in many respects. Even in the insurance industry, when they were bringing credit scoring into existence, I talked to some of the companies, particularly the mutual companies, and a number did not want to go into using credit scoring because they saw the blatant unfairness of it. But they didn't have a choice because their competitors were doing it, and they had to do it too, or risk failing as a business. So they had to go with it. That was one of those where it was, "I'm sorry, I had to shoot you, but you were just in the way."

On this issue of credit score use by insurers, are there any regulators or anyone out there who you think will carry the torch forward on it?

I think this is going to continue for some time. If you look at credit scoring, particularly, if you take a look at it with any kind of racial analysis, you come up with a sense this is a lot harder on people of color. Well, so was redlining, when they allowed that, and they would say that we're not going to insure anybody in this particular area.

Generally, you're also looking in the form of redlining right now with the use of credit scoring. Credit scoring is another way of separating out rich people and poor people.

What's one of the most surprising things you've learned about the insurance industry throughout your career as insurance commissioner?

When I came into it, I had the experience of serving in the Washington State legislature and in Congress before I was elected to insurance commissioner. I've always felt that it's very seldom that it's always just clearly black and white. If it was that black and white, they'd solve the problem, it wouldn't be in front of you. That was certainly true in the case of the insurance industry too. I have worked together very collaboratively with the insurance industry; I have recognized from day one that a healthy insurance industry was imperative for the sake of consumers.

Have you figured out what's next for you yet?

My last day will be Jan. 12, 2025. The election will be in November, and then there will just be a transition period.

Besides enjoying my grandkids, I've got things to build and things to do. That's always a priority for me. The second would be that there are a few trips I would really like to take: Patagonia and Antarctica and the Galapagos Islands.

I think it's fair to say that I will not be seeking any financial connection to the insurance industry upon my retirement.