Consumers are In the Dark About Reasons for Their Premium Increases, Washington State Is Proposing to Change That

By: Michael DeLong, Research and Advocacy Associate

In recent months, insurance companies have been increasing rates for consumers across the country, claiming that current circumstances give them no choice. But in Washington State, insurance regulators are trying to shed some light on these price hikes by issuing a rule requiring insurance companies to give people transparent information about their premiums and the factors that affect them.

Nearly everyone in Washington State deals with some type of insurance — drivers are required to purchase auto insurance, banks require homeowners insurance for mortgages, and consumers purchase numerous other products that require insurance. Often, premiums can go up for no apparent reason at all, frustrating policyholders and leaving them in the dark, grasping for information.

The Washington State Office of the Insurance Commissioner wants to counter this. They have drafted a new regulation, R 2022–01, which requires property and casualty insurance companies to provide their customers with a detailed breakdown of premium increases, the factors that affect those increases, and a breakdown of each factor and how much it impacts their premium.

Consider this case: if someone adds a new car to their insurance policy and their premium increases, the insurer has to tell them how much that affects their new premium. If a consumer is convicted of a moving violation and their premium increases, the company has to follow similar procedures. And if someone is widowed and loses their married customer discount, or sees a decline in their credit and their premium goes up, the company has to spell that out for them.

Washington consumers currently spend over $7.5 billion annually on the kinds of insurance that this rule will cover. But the lack of clarity and understandable disclosures means that consumers often have no idea what factors are causing their premiums to go up. Worse, many insurers charge people more based on characteristics that aren’t closely related to risk. And consumers have no idea that these characteristics — their job title, education level, marital status, credit history, and others — can be used for setting initial premiums and then changing premiums from one renewal to the next.

For example, auto insurers, use credit information to discriminate against certain consumers and charge them more. Consumer Federation of America found that on average, Washington consumers with excellent credit and a perfect driving record paid an average annual premium of $468. But consumers with the exact same driving record but fair credit paid an average annual premium of $633 — $165 or 35% more. Consumers with poor credit paid an average annual premium of $836 — $370 or 79% more.

Plus, some of Washington’s largest auto insurers charge consumers significantly more based on their credit information. Allstate charges consumers with poor credit 89% higher premiums than consumers with excellent credit. Progressive charges consumers with poor credit 108% higher premiums, and State Farm charges consumers with poor credit 185% more. These insurers have an obvious interest in keeping the impact of credit information and other factors hidden from policyholders. If most consumers don’t know about this discrimination, they can’t take steps to counter it and find better deals.

Washington State is saying: Enough! This rule will dramatically improve consumer understanding of the cost drivers impacting their insurance and give them more information. Consumers should know the reasons for auto insurance premium increases and decreases. And if their credit declines, possibly due to circumstances beyond their control, they should know its impact on how much they pay every month. If a consumer’s annual premium increases by $200, $400, $600 or more because of changes in their credit score, they deserve access to that information.

The Office has been receiving comments on this rule for over a month and is currently finishing up a second draft. Consumers have a right to know the reasons for auto insurance premium increases and decreases, and they should get a detailed description of all these characteristics. For the benefit of all Washington State residents, we hope this regulation is adopted soon.

You can find this story on CFA’s website.