Want lower auto insurance premium? Your best chance to shop starts June 20
For the first time in more than two decades in Washington, the insurers selling you auto insurance cannot use your credit information to determine how much you’ll pay. Your premium must be based on factors such as how you drive, how far you drive, any driving citations and what you drive.
An emergency regulation from Insurance Commissioner Mike Kreidler temporarily bans the insurance industry’s use of credit scoring starting on summer solstice, June 20.
If you’re a good driver with some past hits to your credit score, shopping around for new auto coverage after June 20 could save you significant money.
161 companies — or 97% of the market — have filed new plans to comply with the emergency rule. This shifts the insurance market away from its reliance on confidential credit scoring formulas to set your rates and back to common sense factors, like how you drive and what you drive.
What did your credit score ever have to do with what you pay for car insurance (and other types of insurance, too, including homeowners and rental coverage)? It wasn’t about paying your premium on time or personal responsibility; it was about what your debt-to-credit limit was and if you even used credit. And if so, how much credit you had. And how long you had certain credit accounts. And on, and on and on.
For those hit with poor insurance credit scores, it was never clear what they were supposed to do to improve their score and get a better deal. They were stuck. Insurance credit scoring formulas remain the closest held secret in the industry.
And now in the face of a more fair and realistic marketplace, we’re hearing familiar scare tactics. “Premium for many will skyrocket.” “Insurers will leave the market.” “House closings will fail because people won’t be able to secure insurance.”
But here’s the truth: Insurance companies are not hurting or floundering in the wake of this regulatory change. Despite the financial upheaval from the global pandemic and the rebates they offered their policyholders, insurance companies are doing really, really well. And many of their CEOs are doing even better, receiving millions in bonuses.
Washington auto insurers saw their loss ratios drop 10% between 2019–2020. This means they made an extra ten cents on every dollar they collected in premium during the first year of the pandemic. They paid a lot less in claims and banked the rest.
Industry aggregated policyholders’ surplus (adjusted for affiliated investments) increased 7.2% to an all-time high of $955.1 billion at December 31, 2020 versus $891.2 billion at the prior year end. Nineteen consecutive years of industry profits have fueled growth in surplus as this figure has increased 232.2% since 2002. Given the trend in growth, it is likely that surplus could reach one trillion dollars at the end of 2021. — NAIC’s Property & Casualty Insurance Industry 2020 overview
Michael Tipsord, the CEO of Washington’s largest auto insurer, State Farm, received an $18 million bonus in 2020, nearly doubling his pay over 2019 to $20.3 million. Progressive’s CEO, Tricia Griffith saw her pay package increase by 8.4% to $15.22 million. And Allstate’s CEO, Tom Wilson got a 7.7% boost to $21.1 million.
So, don’t worry about your insurance company or put a lot of stock in their ads about loyalty. They’ll be just fine. Their real loyalty is to the bottom line. And let’s be clear — again — about the key goal behind these tactics: Preserve the status quo no matter who continues to get punished. Remember, safe drivers with no claims and low credit scores in Washington have been paying an average of nearly 80% more for their auto insurance.
Insurance companies can — and should — choose to lessen the impact of this regulatory change on their policyholders. They certainly have the money to do so. And after all, credit scoring was their creation.
So consider spending some of the longest day of the year shopping for new insurance coverage. And trust us, if you find a better deal with a new company, your old company will be just fine.