Auto Insurer Hits The Gas On Rate Increase
Why did Randy Palmieri's auto insurance rates more than double recently? Before we dive too deeply into that question, here are a few relevant details about the gentleman and his insurance.
He lives in the Cave Spring area of Roanoke County. He recently turned 66. He has three vehicles. His insurance company was Elephant Auto Insurance, which is based in Henrico but is a subsidiary of Admiral, a giant British insurer. He's been an Elephant customer for about five years, he said.
In that time, Palmieri noted, he's made no auto claims. Nor has he had a traffic infraction in roughly 20 years. He carries liability but not collision or comprehensive insurance. That keeps his premiums down.
In 2015-16, his auto insurance cost $559 annually, and Palmieri paid that in one lump. Last fall it went up to $1,149 for 2016-17. He's been unable to get what he considers to be a satisfactory explanation from Elephant for the steep increase.
Palmieri is a bit of an odd duck in at least a couple of ways. First, he has no credit history. Excluding tires he bought on credit in 1977 and for which he faithfully made the payments, Palmieri said he's never borrowed any money. Ever.
"I was never enticed into living beyond my means by acquiring credit," he said. When you buy something on credit, he added, you almost always end up paying more. And "I didn't see any reason for paying more for something when you can save up and just buy it."
"You've never had a mortgage?" I asked.
Years ago, Palmieri said, he paid cash for a house on Bent Mountain that was in dire need of repair. He fixed it himself without any loans. The house he now lives in was a bequest from his late mother, he added.
Another way Palmieri is unusual: One of his pastimes is writing letters. I can identify with that one. I do it also - to companies I believe have ripped me off. Usually those get results. But sometimes it takes a few letters to the CEO before they cry "uncle."
For the auto insurance question, Palmieri turned to lawmakers. He sent letters to six elected officials. Of those, he said, "I received responses from three: One from Del. Chris Head, two from Rep. Bob Goodlatte and three from [U.S.] Sen. Mark Warner.
"All three passed my information along to the State Corporation Commission. All three assured me they would pursue the matter and keep me informed."
(In the third letter from Warner, Palmieri said, the senator thanked him for his interest in the Clean Water Act. That gave Palmieri pause because he's never written Warner about clean water.)
Anyway, the endeavor resulted in additional correspondence with James Heretick, a senior insurance market examiner with the State Corporation Commission.
But Palmieri got little satisfaction there. Heretick told him there was little the SCC could do because auto insurers are more or less free to charge whatever they want in Virginia, provided they file the correct rate-establishing paperwork.
Palmieri strongly suspects Elephant jacked up his premiums because he has no credit history. And there's some reason out there to justify that suspicion.
For example, in a 2015 article, Consumer Reports found that credit scores can have a big influence on auto insurance rates, and that some companies use them more than others. It's not because insurers are concerned their customers won't make insurance payments. Rather, beginning the 1990s, the industry figured out that the lower the credit score, more likely a driver was to make a claim, according to the magazine. Go figure.
The magazine also found Virginia is one of the states in which poor credit is more likely to result in increased auto insurance rates.
Although rating factors vary widely by companies, the article noted that premiums for a Virginia driver with poor credit but an excellent driving history can be more than double the insurance premiums of a driver with excellent credit and an excellent driving history. And that's when all the other factors are equal.
Bizarrely, even a driver convicted of a DUI charge but who has excellent credit can expect to pay less than a driver with an unblemished driving record but poor credit, according to Consumer Reports.
Age is another reason auto insurance rates might fluctuate. Both younger and older drivers pay higher insurance rates, in part because they have higher death rates behind the wheel. And Palmieri recently turned 66.
"Auto insurance is discriminatory," Heretick told me. With respect to age, "it's an inverse bell curve. The years you're working are typically the lowest point for [premiums]."
I asked Elephant what would justify a 105 percent rate hike for a claimless customer with a stellar driving record. Here's company's written response:
"When calculating an insurance premium, we look at over 50 rating factors to help us assess the risk presented to us by a customer. We base this on our claims statistics and data from many customers over many years. This helps us to price accurately based on the risk of that person making a claim.
"As an insurer we constantly review and adjust prices across these rating factors. There has also been a broad increase in the base premiums as generally prices have risen across the insurance industry over the past decade."
Would lack of a credit score influence rates? I asked Elephant.
"Yes, whether it's because a credit score cannot be found, or there is not enough history to build one, not having a credit score may affect a rate," the spokesman replied in an email.
Ken Schrad, an SCC spokesman, said there are hundreds of companies selling auto insurance in Virginia. Elephant is one of the more recent to enter this market.
He said the company files rate-changing paperwork with the SCC's Bureau of Insurance far more frequently than is typical. Usually, a company will file once or twice a year, Schrad said. Elephant files seven or eight times per year.
"They use a sophisticated model to base their rates on almost real-time claims expenses," Schrad said.
Here's my guess as to why Palmieri's claims skyrocketed: When it entered this market, Elephant offered bargain-basement prices to reel in Virginia customers. Now, it's increasing rates to generate profit.
But because the industry is competitive, consumers can use a similar strategy. Odds are, some company's always offering low-cost premiums.
Heretick told me premiums can vary as much as 400 percent from one auto insurer to another. That means it's wise to shop around to find the insurer that's low-balling rates at the present.
And that's what Palmieri did rather than pay Elephant's $1,149 bill.
Last October, he discovered Progressive would give him the same level of coverage for six months - for $300. His most recent six-month contract with Progressive went up by $40.
As Schrad noted, auto insurance is a fixed-term contract.
"They can drop you, or you can drop them," he said.
That's a game we all ought to be playing to our own benefit.
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