If you live in Washington and have had a stellar credit score for some time now, you may be facing higher insurance costs for the next three years. Neither you nor your insurer is at fault for the highly probable hike in your homeowners, renters, or auto insurance premium rates.
Here’s a look at the new regulation and why it’s terrible news for more than a million policyholders in the state.
What Does the Ban Say?
As per the new regulation, insurers in Washington shouldn’t use credit scores to determine how much to charge individuals for homeowners, renters, or auto insurance coverage. The ban took effect on June 20, 2021, and remains in force for the next three years. To comply, insurers have already submitted their reviewed rating formulas to the office of the Insurance Commissioner.
Which Rating Plan Have Insurers Historically Used?
Before the recent ban, insurance companies in Washington could use your credit consumption to set the rate for your personal insurance policy. They’ve established a strong relationship between credit and the probability that a customer will file a claim. If you have a high score, you’ll usually have a slim chance of filing a claim. You pay lower insurance rates as a result.
However, credit scoring isn’t the only determinant for your insurance rates. Insurers will also look at your claims history. Your driving record and age also play a vital role in your auto policy costs.
Insurers have been using that rating system for decades, including in other states. The new ban on credit-based insurance scoring denies them an important tool to assess risk and determine reasonable pricing for insurance products accurately.
Why Taking Credit Scores out of the Equation May Hurt You
One direct consequence of the Commissioner’s action is that insurance costs for more than one million policyholders in Washington may increase by double digits. Worse still, there will be no plausible explanation for a sharp rate hike impacting consumers whose individual risk profiles haven’t changed. In other words, the ban might make you pay more for insurance even with a stellar driving record and favorable claims history.
The change is undoubtedly unfair and punitive for consumers who have enjoyed affordable policies for some time now. It’s the inevitable outcome of unnecessary regulatory interference with the natural competitiveness of a private market. Any sector of the economy can be affected, and insurance is no exception.
Keep in mind that accurately predicting risk and setting rates accordingly benefits both the insurer and the consumer. It protects carriers from paying too many claims, which pushes them to loss-making or bankruptcy territory. To sustain their operations and maintain their ability to protect their customers adequately, insurers may have to raise rates when they’re consistently paying too many claims. As such, any law or market force that makes it more difficult for insurers to minimize their risks is unhealthy for the industry and bad for consumers.
Sadly, the Kreidler ban puts the Washington insurance industry in this precarious position for the next three years. Consequently, home/renters and auto policies may become too expensive for many consumers currently grappling with pandemic-related financial problems.
Let’s hope that Washington’s insurance regulator rescinds the ban soon enough to protect innocent policyholders from unnecessary coverage costs or even the lack of coverage. Despite the regulatory change, the team at Humble & Davenport Insurance remains sensitive to your insurance needs and budget. Contact us today if you have any questions about personalized homeowners, auto, or renters insurance policies.