By Mike Kreidler / For The Herald
Clark Sitzes of the Professional Insurance Agents Alliance recently trotted out half-truths about the emergency rule I issued recently to prohibit insurance companies from using your credit score to set rates for auto and residential policies (“State insurance official’s move could increase rates,” The Herald, June 27).
Not surprisingly, he also left out relevant facts while blaming my office for the industry’s unwillingness to do better by its customers. He illustrated how reluctant insurance companies are to let go of an unjust and outdated method to determine what you pay for insurance.
His attitude reflects the industry’s smoke-and-mirrors approach. Here’s what he’s not telling you:
Sitzes claims credit scores are a good predictor of who will file a claim and will result in a great price for you. But consider this: For the first time in more than two decades in Washington state, auto insurers 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 and what you drive.
The use of credit scores should have nothing to do with insurance. We have all seen the ubiquitous company commercials. When do those ads ever mention that your credit score means more than how safely you drive or maintain your property?
Sitzes must have missed this headline from the Consumer Federation of America earlier this year: “Insurance Companies Charge 79% More To Safe Drivers in Washington State Due to Low Credit Scores; State Farm Nearly Triples Premium for Good Drivers with Credit Problems.”
He did note correctly that I rejected a legislative option to “help” those with bad credit due to changes during the pandemic, such as losing a job. I certainly did rebuff the nonsense known as “extraordinary life circumstances.” This industry-written law hands all the power to the companies to determine if you are worthy of relief. No guarantees; and my office would have no authority over a decision.
It was a great deal for insurance companies. They become the prosecutor, judge and jury. Here’s what Consumers Union had to say about it back in 2013:
“Given that the majority of consumers are unaware that insurers use credit information, it is highly unlikely that consumers will know about the existence of an exceptional life events exemption in the states that have adopted one. These barriers mean that consumers who qualify for an exemption may not exercise the option when needed, making the benefit of an extraordinary life event exemption illusory.”
Sitzes also says I ignored the “will of lawmakers” in issuing the emergency ban. Legislation I proposed this year (for the third time in 20 years) to prohibit the practice had majority support in the Senate where it originated. But the chair of the Business, Financial Services and Trade Committee refused to advance the bill after public hearings and despite support from consumer groups including AARP and Consumer Reports.
I also rejected a compromise bill after the committee chair allowed an industry lobbyist to rewrite it to favor insurers.
Insurance credit scoring formulas remain the closest held secrets in the industry. That same industry is upset by a challenge in this state. Sitzes failed to note that several other states already ban the practice and others are teeing up their own legislation.
Insurance companies are not hurting 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 just fine. Washington auto insurers saw their loss ratios drop 10 percent between 2019 and 2020. This means they made an extra 10 cents on every dollar they collected in premiums during the first year of the pandemic. They paid a lot less in claims and banked the rest.
Michael Tipsord, the chief executive 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 CEO Tricia Griffith saw her pay package increase over 8 percent to $15.22 million. Allstate’s CEO Tom Wilson got a 7.7 percent boost to $21.1 million.
The tactics that Sitzes and industry lobbyists employ continue to focus on preserving the status quo no matter who continues to get punished. And remember, 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, linking credit scores to insurance was their creation.
Mike Kreidler is Washington state’s insurance commissioner.
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