Safe Washington Drivers with Low Credit Scores Charged Over 75% More

As the Washington State Legislature considers legislation to ban the use of credit scores in auto insurance rate setting, CFA released new data earlier this month demonstrating the harmful impact on consumers of this rate-setting practice. Specifically, the CFA analysis shows that good drivers in Washington State pay 35% more on average for auto insurance if they have Fair credit histories rather than Excellent credit, and those with Poor credit pay 79% more on average.

CFA’s analysis uses data from Quadrant Information Services, LLC to highlight the premium hikes imposed by 10 of Washington State’s largest insurers. The analysis, which tests premiums for good drivers purchasing the minimum state-mandated coverage, found that:

• Statewide, safe drivers with Poor credit pay 79%, or $370, more on average than a driver with Excellent credit, all else being equal.
• Premiums increase by 35%, or $165, on average statewide for a good driver with Fair credit rather than Excellent credit.
• State Farm charges the highest credit score penalty of 69% for drivers with Fair credit and 185% for drivers with perfect driving records but Poor credit. PEMCO charges the next highest credit history penalty — 68% for Fair credit drivers and 183% for Poor credit.
• Even the smallest credit score penalty, imposed by American Family, forces safe drivers with Fair credit to pay 17% higher premiums and those with Poor credit to pay 36% more.
• In Seattle, the average annual premium rises by $508 for a safe driver with Poor credit, and by more than $700 for customers of either Allstate or State Farm.

The data makes it clear that drivers with anything less than excellent credit face severe penalties in Washington State, and they have to pay substantially more for mandatory auto insurance than if they had better credit scores, even when they have perfect driving records.

The Washington premium data reviewed by CFA includes premium quotes for minimum limits auto insurance coverage from the state’s 10 largest insurers in every ZIP code. For each company, CFA reviewed the premium charged to 35-year-old drivers with different credit scores. Every premium in the database CFA used for the analysis is for a driver who has no accidents and no tickets in their driving history, and who drives a 2011 Honda Civic 12,000 miles per year.

Figure 1 shows the premiums quoted to a female driver living in the Rainier Valley neighborhood of Seattle (98118) by all 10 companies according to her credit score. While the cheapest basic limits policy for the driver with an Excellent credit history (excluding USAA, which requires policyholders to have a military affiliation) is $372 from PEMCO, the best rate a driver with poor credit can find in 98118 is the $996 premium offered by Geico. That’s $624 more for drivers with perfect records even after shopping nine different companies.

Figure 2 shows the credit based premium differences in several communities around the state, illustrating that the credit penalty is imposed on safe drivers no matter where they live.

Figure 3 shows the different penalties applied by each of the 10 companies reviewed by CFA. State Farm and PEMCO impose the most significant surcharge on lower credit drivers, while American Family and GEICO Advantage charge the lowest (but still large) penalties.

“Since state law requires that every driver buy insurance, the insurance companies should have to price policies fairly and give every good driver the best price, regardless of their credit history,” said Doug Heller, CFA Insurance Expert. “By punishing drivers with clean driving records but less than perfect credit, the insurance companies make coverage more expensive for those least able to afford it,” Heller continued.

“No matter where you live and how much you shop around, if your credit score is not great, you will be penalized when you buy insurance,” stated CFA Insurance Advocate Michael DeLong. “But the legislature has the chance to change this. They can and should pass SB 5010, which would ban the use of credit scores.”

SB 5010 was recently heard by the Washington Senate Business, Financial Services, and Trade Committee, and is waiting to be reported out.