Insurance industry has chance to disrupt itself to benefit policyholders

Although the insurance industry in Washington got a narrow and favorable court ruling about an emergency rule banning the use of credit scoring, the real question is this: Will insurers take advantage of an opportunity to do right by their policyholders?

Insurers here hiding behind their lobbyists, the American Property Casualty Insurance Association (APCIA) and the National Association of Mutual Insurance Companies (NAMIC), have been fighting to hold on to the unjust use of credit scores to determine what you pay for auto, home and renter insurance. This a method they’ve employed for over two decades at the expense of people with lower incomes, regardless of whether they have good driving records and never filed a claim.

Graphic: Insurance rates increase as credit scores decrease

But while the insurance industry continues to bellow about the gargantuan importance of using credit scores, a nick in the public-relations armor is showing.

Industry giant Allstate recently noted its effort to transition away from the use of credit scores. Instead, the company with 22 million policyholders nationwide is focusing on determining risk by tracking your actual driving habits. In a recent news story in the Wall Street Journal, Allstate said its shift “would hold out the possibility of lower rates for vehicle owners who are excellent drivers or don’t drive that much, and who might now be overpaying for the risk they pose.”

There are privacy concerns about this sort of tracking. Not everyone is comfortable with it. But like many other insurance concerns that have arisen over the years, this one could benefit consumers … if done right. But that’s assuming the insurance industry at large wants to do right by its policyholders.

“It takes collaboration to get there,” Allstate is quoted as saying.

It also takes willingness of a conservative industry to disrupt itself to benefit consumers.

Insurers upset with the emergency rule in Washington have had the opportunity for months to seek approval for new premium filings that rely on other risk factors without the use of credit scores. Some of these factors include your claims history, moving violations, lapse of coverage and dozens more.

Your premium would be based on factors such as how you drive, how far you drive and what you drive. Same goes for how well you maintain your property.

More questions policyholders should be asking insurance companies:

Will they now rescind premium increases they imposed in recent months, while never taking action to consider other reliable risk factors?

And will they now raise rates for those who received decreases?

It’s never been clear to those hit with poor insurance credit scores what they could do to improve their score and get a better deal. They were stuck.

A good driver with a low credit score could pay 70% more than a driver with good credit but a DUI. That’s happening here and across the country.

Graphic: Drivers with poor credit can pay up to 70% more than a driver with good credit and a DUI conviction.
Graphic courtesy of Consumer Reports

Insurance credit scoring formulas remain among the closest-held secrets in the industry — a secret they say they have to keep at your expense.

But it seems Allstate and others are ready to cause disruption to the benefit of millions of policyholders. We stand ready to help them. As the company says: “There is an opportunity to encourage innovation in the insurance industry, and we want to start that dialogue with regulators and others.”

And remember: If you have questions about a recent rate change or if you believe your insurance company is not treating you fairly, contact us.



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WA State Office of the Insurance Commissioner

WA State Office of the Insurance Commissioner

Washington state Insurance Commissioner Mike Kreidler regulates the insurance industry and protects insurance consumers.