Rules change for rates for auto, home, renters and RV insurance

Personal insurance policy renewal letters, the first sent since the state insurance commissioner enacted a rule June 20 to ban insurance companies from using credit information to set rates, have begun arriving in mailboxes and e-mail inboxes around  Washington with what AAA calls shocking news.

AAA, which provides travel and insurance-related services, wants consumers to understand how the rule change will impact their auto, home, renters, motorcycle, boat, and RV insurance rates. People with low credit scores will celebrate the good news of a rate drop, and consumers with high credit scores should prepare for rates to increase, sometimes more than 20 percent.

“This will be a shock to people with good credit. Consumers with a high credit score were essentially receiving a discounted rate on their insurance, whether or not they knew it,” said Patrick McCormick, AAA Washington’s vice president of insurance. “Removing the credit element from determining rates also removes that discount, resulting in a more expensive insurance rate without the consumer doing anything to negatively impact their rate.”

The change will likely put a significant burden on one particular segment of the population — senior citizens with high credit scores and who live on a fixed income, according to AAA.

“Not only do many seniors live on very strict budgets, they generally have higher credit scores. Preventing insurance companies from taking credit into account may create difficult financial times for these Washington residents,” McCormick said.

The federal CARES Act placed a temporary hold on the use of credit scoring in recognition of the pandemic’s impact on peoples’ credit. As a result, credit bureaus are collecting a credit history that is inaccurate for some consumers and producing unreliable credit histories. Insurers rely on credit histories to set rates for policyholders, which currently is an unreliable system, according to the insurance commissioner.

If a consumer’s insurer is increasing their premium, they should shop for a better deal, said officials in the insurance commissioner’s office.

“You have the best opportunity in two decades to get better deals on auto and homeowner policies since insurers can no longer use credit scoring. Your premium will depend on more predictable factors like how you drive, what material your house is made of and if you file a claim,” the office said in a prepared statement.

For consumers with a high credit score who receive notice of a rate increase at renewal time, AAA recommends:

  • Sign up for your insurance company’s Usage Based Insurance, which gathers information on driving behavior  – such as hard braking or accelerating, what time of day you drive the most, and how much you’re driving.
  • Bundle home/renters, auto, recreational vehicles and other policies under one company to get a better rate.
  • Washington drivers over 55 years old can receive an auto insurance discount by taking driver-improvement courses every two years.