Insurance

Washington Home and Auto Credit Score Rating Ban – Megathread – Start here if you live in WA State

This post was edited June 22 to reflect the post-ban world:

If you don’t read long things, you need to call your insurance agent and ask them how this is affecting you, and what you can do about it, but do it before June 20. Posting your own thread about it will likely just get you linked back here.

If you do read…

Welcome! Below you’ll find a rough idea of what has happened or is going to happen to most home and auto insurance policies in Washington State as of this post, what the timeline for that is, and what you might be able to expect in the coming year or so as things move forward.

I am a Washington State licensed home and auto agent and my primary practice is working with individuals on home and auto, life and other personal and household insurance needs. At present, I am not aware that commercial policies are being affected by this ruling. [At time of writing, the ban is set to last three years, and what will happen after that is a matter of speculation, with nothing set in stone. It goes into effect June 20.](https://www.insurance.wa.gov/credit-scoring-ban) Of course, court cases and legal challenges could change all of this, but for now this is happening, and it’s going to be big for some folks, in both directions.

**What is happening?**

In short, the insurance commissioner has issued [an emergency ruling](https://www.insurance.wa.gov/sites/default/files/documents/r-2021-02-cr-103e_0.pdf) that bans the use of [credit information in rating home and auto policies](https://www.investopedia.com/terms/i/insurancescore.asp) for the next three years. This affects new policies after June 20, 2021 and renewing policies (staying with the same company) after some time in August, though the original order specified ALL policies both new and renewing after June 20. The August date is less important for reasons I will elaborate on below. The approved filings for each company determine when your rates will be effective, and your company SHOULD BE communicating to you if your rates will increase.

A key part of the ruling is this:

>(5) In order to comply with this section, insurers subject to this rule may substitute any insurance credit score factor used in a rate filing with a neutral rating factor. (a) For purposes of this section, “neutral factor” means a single constant factor calculated such that, when it is applied in lieu of [insurance-score-base](https://www.investopedia.com/terms/i/insurancescore.asp) rating factors to all policies in an insurer’s book of business, the *total premium for the book of business is unchanged.*

This means that any given insurance company had to replace the different credit-based rating with an “average” factor representing all their clients. They cannot increase the overall amount of money they collect in premium as the result of complying with this rule. If they collected a million dollars a year in a credit-rated world, they can only collect a million dollars when they eliminate credit.

Credit information is used to predict claims risk in insurance – NOT necessarily accident risk, but CLAIMS risk. All claims cost money, so accidents are not the only things insurance companies care about. [Different companies use different formulas to calculate an “insurance score” and they weight it differently. This formula is always secret. Nobody knows what it is and nobody can tell you.](https://www.investopedia.com/terms/i/insurancescore.asp) There are other ways to do measure claims risk, though, the elaboration of which I will defer to actuaries who know way more about it than I do. If you had a good insurance score, companies charged you less. If you had a lower insurance score, companies charged you more. Sometimes they would even make decisions about whether or not they would let you buy insurance from them at all based on this score. This is all going away on June 20, 2021 in Washington State.

**How does this affect me?**

It’s going to have one of three effects: Your costs will go up, or down, or stay about the same after June 20 when your policy renews, or when you buy a new policy after that date. Average is a very important concept in this rule, since the companies were ONLY allowed to remove differentiated insurance scores and replace them with the “average” or neutral rating factor. EVERY COMPANY has a different average rate, and your factor against that “average” for each company is going to be different.

In your current company, if you are better than average (good credit) as compared to the average customer of your company, your bills will go up when your policy renews.

In your current company, if you are average-ish, (average-ish credit) as compared to the average customer of your company, your bills will stay roughly the same when your policy renews.

In your current company, if you are in a place where your credit is not so hot as compared to the average customer of your company, your bills will go down when your policy renews.

The most extreme impacts up or down will happen to the folks with the highest or lowest insurance scores prior to revision in the next 6-plus months – This filing could ONLY revise credit factors, and nothing else. Most companies will likely choose to file a second set of rates (which is how they ask the insurance commissioner’s permission to change how they charge customers for insurance and they have to wait for him to say yes or no before they can do it) shortly after this one, but with over 100 companies filing new and more complex rate requests to account for this, and all of them having to be processed through the OIC before they can go into effect, they won’t be processed quickly. Expect that it’ll be a good six months or more before we see any changes beyond these, and nobody knows what those might be at present.

**What can I do to make this better for me?**

1. **EVERYONE!** Call your agent or company and ask when your rate will change, and how much it will change as the result of this law. They know. They should tell you. The further away your renewal is, the more likely it is to be affected by a second filing being approved to revise rating factors that account for claims risk that aren’t credit-based. Write this information down and keep it handy. ~~If you have a six-month policy and your rates are going to go up at renewal, ask about the possibility of extending your policy into a 12-month policy. YOU MUST DO THIS BEFORE JUNE 19~~. June 20 has come and gone. Your rate is going to change by how much they tell you if you do nothing.
2. **If you have good credit** and your rate will likely go up: You missed your chance to lock in those pre-change rates. You’re going shopping, but you have time. Call folks who have the name of the insurance company on the sign and call folks who don’t advertise one specific company, but have many options to choose from (independent agents). All you can do is stay where you are until renewal, though it won’t do you any harm to shop and see if the post-credit world has a company with a better average insurance score/rate combo that will reduce your bill. You might also talk to your agent about whether you need all the coverage you have on the car itself.
3. **If you have poor credit** and your rate will likely go down, you might be able to make that happen sooner by shopping this summer. Be patient and you might find an agent you really like. Patience will get better service, anyway, since the agents are all swamped at the moment.
4. **If you have middling credit**, you’d probably benefit from shopping, but your benefit might not be worth the time. Swings of 5-10% either direction should be expected, and you can probably wait this out unless that is seriously concerning to you. Make an appointment with the agent in question so you can discuss coverage and options.

To improve service, *please call an agent and make an appointment to review all options*. They are ALL going to be swamped, and the client sitting in front of me is the one I’m helping, every time. The more present, available, and prepared you are, the more likely you will be to get what you want. Appointments are always appreciated, especially when the agent can prepare for them. You can do quotes online, but you are limiting your options there as many companies only do business through agents. This includes the ones who are best for people with good credit.

Follow whatever process the agent has for collecting information prior to quote. They will need all household driver licenses and social security numbers, because you still need both of those things. Be HONEST about your driving records so that the agent has the best chance at rate. If possible, get a copy of your CLUE report from LexisNexis and MVR and send them over to the agent, for all family members, to get the most accurate rates. They will run reports, but many do it after the sale, not before, because those reports cost money when you don’t take the quote. If your information was inaccurate, your price won’t be accurate either.

For homeowners, know when your plumbing, HVAC, electrical, and roof were last updated. If they are older, be prepared to have fewer options. Many companies won’t take roofs over 20 years old at this point, and those that do charge a premium. Also, many companies won’t take homes with unfenced pools/trampolines or they exclude them. Many of them also won’t insure homes with certain breeds of dog or a dog with a bite history. Deferred maintenance is problematic for many, along with flat roofs. Underwriting guidelines have changed since many of us got homeowner insurance and companies aren’t as willing to take homes that have a higher chance of claims based on a variety of factors. Ask your agent if you have questions.

Renters and Condo owners, you may not have credit included in your rating, but you’ll shop that with your auto anyway. It can only help. Take a moment to make sure you have the correct coverages for your policy.

This is not meant to be comprehensive, and is general education meant to help you understand how you fit into the new scenario. This is not intended to be a buy recommendation for any product from any given company, and is certainly not meant to be a solicitation for business.

Mods, please remove political commentary from the comments on the post. That’s not the purpose here and those of you who need a place to vent your opinion can express your pleasure or displeasure with the individuals enacting this ban elsewhere.

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11 Comments

  1. Excellent post! My only nit-pick is that unless your renewal has processed through the system, we don’t all have a way of knowing how your rates will go up or down. We will certainly be keeping an eye out as those renewals come in though, this is going to be very disruptive.

  2. Hey there, actuary here. Without getting into my personal feelings on the matter, let me explain why the move by the commissioner is both unwarranted and detrimental for consumers.

    First, let’s look at the reasons why commissioner Kreidler wants to ban the use of credit score. He is claiming credit score has a disparate impact on black and brown communities. Furthermore he is pushing the ban as a response to the pandemic’s financial effects on families. Credit scores have been shown to be a highly predictive variable for the likelihood of filing a homeowners or auto claim. A 2007 study by the FTC also showed that credit score doesn’t serve as a proxy for race nor income. Credit score is a measure of personal financial responsibility, and speaking just practically, is it really hard to imagine that someone who doesn’t pay their bills on time would also be irresponsible when it comes to other areas of their life like driving or maintaining their home?

    ​

    Now to the argument that the pandemic has impacted WA consumers credit profiles. Yes, this might be true, but the commissioner oh so conveniently forgets all the exceptions that the industry put in place at his office’s discretion to handle these situations. Insureds who are impacted by financial hardship are permitted to ask the carrier to treat their score as neutral instead of negatively. This is EXACTLY what the commissioner is asking the carriers to do for all insureds now.

    Actuarially speaking, I have some data that shows an estimated 60% of Washington consumers will see an associated increase in their home and auto premiums as a results of the commissioners actions. Then there’s the matter of hundreds of rate and rule filings for the insurance carriers. I can say this as fact, WA is the absolute worst state when it comes to timely review of rate filings. They can take 6 months to a year to review where other states typically review in 2-3 months. I have no idea how they can possibly review these filings in the short timeline he’s laid out.

    Also, IANAL, but just because the injunction didn’t happen, doesn’t mean the industry has lost this case. The commissioner first went to the legislature to enact this ban, but when they didn’t pass the legislation he wanted, he acted on his own to enforce the ban. IMO, the legal battle about the power of an insurance commissioner is just beginning. He hasn’t made many friends in the legislature either by acting via executive fiat.

  3. Good post. This seems like an incredibly stupid decision. But I will admit my bias in that I have a good credit score. But that took 10+ years of hard work and sacrifice. I still budget/spend like I make $12-13/hr despite several promotions and making way more now.

  4. I ran into this issue when buying a home in WA. Managed to close early (before June 20) and get home & auto policies lined up. USAA was flummoxed and couldn’t write policies at all for us, so we switched insurance providers.

  5. Progressive sent me an email detailing the potential of a rate increase and gave me a one click option to extend my 6month policy that ends later this year into a 1 year commitment. I happily clicked that button knowing I have excellent credit and the lowest rates I could possibly find with a teen driver on my policy. I’ve been alerting my coworkers to this also and they just don’t seem to care which is weird, but maybe they have more play money sitting around than I do. Oh well. You can lead a horse to water right?

  6. I assume most of the weight in companies’ pricing calculations will generally move from credit score to zip code, so “good”/”poor”/”middling” credit should *mostly* be measured relative to others in your neighborhood rather than national averages or company averages or whatever. The big winner here will be the guy in a wealthy neighborhood who declared bankruptcy last year; the big loser will be the woman who’s in a poor neighborhood but has her shit together.

    That said, pricing models are complex and weights will move around a bunch because of this, so I can’t reliably predict how much your rate will move, or even in what direction. I’m also not sure whether insurers will be able to incorporate those changes right away, or if not, how long it will take for them to do so. I strongly agree with the advice about shopping around.

  7. I was hoping somebody would sue the insurance commissioner….this is dumb that people with good credit will have to pay the price for this…meh

  8. This is going to be nice for someone like me who runs a 550… Finally a benefit.

  9. Stay as far away from America Family Insurance as possible. Absolute joke. I called them today and they cannot even tell me what e portion of my rate increase is for this change of taking away good credit ratings. I was told they don’t provide this info. What a total lie. They know and are using this in their favor. Horrible company!

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