Come on Flo!?!? A small warning about churning and car insurance

“We did not give you our lowest premium due, in part, to information contained in your credit history.” When my auto insurance rates went up by ~26% on my latest 6 month renewal, my first instinct was to shop around. After getting a few quotes that were (unsurprisingly) no better, I stopped and decided to compare policy documents. It was then that I noticed a disclosure with that quote. So, this is not a happy post.

Before starting, let me be clear… This post is inconclusive. I know our insurance went up and we got a letter saying that credit may have been a factor. I don’t know how much of the increase was due to that however it won’t stop me from trying to make some sense of it…

About us

It probably doesn’t matter but here’s a bit about us and our car/insurance situation:

  • Mid-30’s, married, no kids.
  • Homeowners for 2+ years.
  • No accidents. One odd year-old claim (damage while towing) that was abandoned when the towing company finally paid.
  • No tickets in 5+ years.
  • We carry homeowners (above average coverage for New Orleans) with our auto company’s affiliate.
  • 3+ years with Flo and company (many before that too, separated by a brief stint elsewhere). Driving since we were 16.
  • 12 year old car with ~100k on it that’s worth about $2000 (but more to us) and paid off.
  • Drive 7500 miles per year or so on our car, almost all in-town and rarely commuting to work (mass-transit and work at home). The furthest it drives with any regularity is to the airport 18 miles away.
  • We carry full coverage with high limits and high deductibles.

In short, we are one boring couple as far as car insurance goes. We even let them monitor our driving via their fancy in-car device and got a discount. After 2 years of that, they asked for their device back and let us keep the discount. Yes, we’re that boring.

About the only knock on us has been living in New Orleans where auto insurance rates are extraordinarily in the first place so that 26% increase is really just ~$100/6 months in our case.

When did Flo start doing this?

First, a couple of definitions. A “hard inquiry” is what you hear discussed most often. That’s an inquiry that is recorded when you seek credit. That is recorded to your credit report for others to see over the next 2 years. When I and other talk about applying for credit cards, this is what we’re referring to. There are also “soft inquiries” which are inquiries a company makes to check-up on you routinely. These are not disclosed to other companies and do not affect your score.

Whenever you receive an adverse decision based on credit, you are entitled to a free copy of your credit report (not a score, just the data) so I took them up on it. The free credit report you are provided should list hard and soft inquiries. From the soft inquiries, I can see that my insurance company pulled my Experian credit report late last month. Looking back, there’s no indication that they ever have before, even during my last renewal. I’ve not comprehensively checked recent Transunion and Equifax reports for soft inquiries there (since I want to save those report pulls) but I strongly suspect this is the first time they’ve used this on our policy.

I think I have to run with the assumption that the whole increase is due to credit inquiries to start so let’s dig deeper…

Trying to understand

Here’s a bigger excerpt from Flo’s letter:

We did not give you our lowest premium due, in part, to information contained in your credit history.  Even so, your premium may be lower than it otherwise would have been without our use of your credit history information.  We look at credit history information that helps us to measure your insurance risk; this information does not necessarily reflect your credit worthiness.  We evaluate your credit history information differently than a lender would.  Therefore, it is possible to have a very good credit score, yet still not be eligible for our absolute lowest premiums.

We did not give you our lowest possible premium due to the following information that we evaluated from your credit history:

  • You applied for credit at least once in the last 2 years, excluding auto or mortgage applications.
  • You applied for 1 or more mortgages in the last 2 years.
  • You had no auto loans or leases reported opened within the last 10 years.
  • The average open date of all your reported loans and accounts was less than 7 years ago.

Let’s take it bullet-by-bullet…

“You applied for credit at least once in the last 2 years, excluding auto or mortgage applications.”

Later in the letter, they disclose that they used Experian so let’s see if I might attribute this to score or inquiries. Quizzle offers free reports from Experian every 6 months. It’s a great service but beware that this is a FAKO score (a 3rd party approximation of the official FICO score based on the Experian report). I tend to update my score shortly after a churn so it hits the low point (currently 744 on this report) and so I can see which inquiries landed where. I then record those into a spreadsheet which I use to predict future credit inquiry distributions so I have excellent data to work with.

Since it looks like they never used this on me before, I won’t bother comparing where I was on the last renewal. On the date they pulled, they saw no more than 17 hard inquiries (which is admittedly a lot). If they just looked at the 90 days before quoting, it was 2-3 inquiries.

“You applied for 1 or more mortgages in the last 2 years.”

We did refi back in May but we didn’t shop lenders so it was just an inquiry at application and a confirmation inquiry immediately before closing from the same source, about 6 weeks apart. It’s hard to imagine why refinancing our mortgages to a single mortgage with a lower overall balance, lower interest rate, shorter term, but higher payment would reflect higher driving risk but they probably can’t see that’s what we did since they didn’t have a prior report to work with.

“You had no auto loans or leases reported opened within the last 10 years.”

Back when I cared about cars, I had a lease that’s clearly reflected at Experian that was opened in 2000 and closed 3 years later.  My last car loan was from my credit union and is simply listed on my credit report as an “Installment loan” which may or may not be interpreted as a car loan. That was opened in May 2005 and closed October 2006.

If they properly recognize the loan, then this reason doesn’t apply.

In any case, I don’t see the logic at all where owning your car outright makes you a higher risk. On the other hand, perhaps the fact that we just don’t buy new cars makes us a less profitable customer.

“The average open date of all your reported loans and accounts was less than 7 years ago.”

This is true but I suspect it’s true of many, many people. Remember that a closed account disappears from your credit report entirely 10 years after closing. E.g. if you took out a 5 year car loan in 1998 and closed it in 2003, then it will be on your report until 2013. Short of ancient credit cards and mortgages that you hold for extended periods, it seems tough to get an average age up to 7 years even if not churning.

Does comparing quotes tell us anything?

I pulled quotes from 3 other agencies after seeing my renewal before I pulled my new free Experian credit report. I can see that one of them took a peek (soft inquiry) when I quoted, despite my having not given them my SSN. Let me stop there to emphasize this: They pulled my credit (soft inquiry) without my SSN (there was some small print disclosing it). I didn’t know that was possible.

Anyway, the other two companies do not appear in my Experian report but may have hit other Equifax or Transunion. In the past, all were higher than my current company and they still are.

The fact that all 4 seemed moved up in tandem (I’m working from memory as I record lots of things but not insurance quotes) would appear to indicate:

A) That all are starting to use credit reports to similar effect.

B) That some are and some aren’t but that the credit aspect is relatively minimal compared to some other broad factor. I can see from this 2011 and this 2012 article that rates in Louisiana rose in general.

The truth is, I can’t untangle A from B based on the information I have available to me.

Any conclusions?

I would take this as a minor caution. It’d be unwise to extrapolate based on our situation but it is a good reminder that your credit is important. If others know more, it’d be great to have more data (even anecdotal) to work with to make some farther reaching conclusion. In 6 months, assuming our profile stays the same, it will be very interesting to see what happens but right now I have no baseline to compare to since this seems like it’s the first time they’ve deployed this technique on us.

If I had to speculate… I’d guess that our inquiries pushed it a bit and perhaps they were a bit surprised at the large amount of (very cheap) debt we carry due to rental property. I’d also guess that a significant part of it is localized given Louisiana’s #1 rank in insurance costs (and rising!).

That said, for us, it changes little. Let’s suppose it costs us the full $200/year in increased premiums. That’s small relative to the value we derive from this hobby and the truth is probably that churning is only a minor part of that increase.

As an aside, I do periodically kick around replacing our car with a new one and did quote one a few days ago. Our rate barely rose despite it being 10-15x the value. That tells me that the 26% increase I’m using is quite likely inflated due to our very low rates (for Louisiana). I’d definitely not suggest that if you were paying higher rates that they would jump 26%. It certainly didn’t appear that ours would on a newer car. And hey… perhaps a car loan would bring down my car insurance per their bullet. If that was my goal, maybe I should just see if I can get a $1000 6 month loan on our current 12 year-old car just to create the credit history.

Geez…that makes no sense.

PS: You know…I’ve wondered a bit what particular skew a blog by me might have and I think a theme of over-analyzing the less glitzy aspects of chasing miles and points is emerging. Detailing point valuation strategies, slogging through award bookings and agents, detailed breakdowns of account closures, and now ominous warnings about car insurance. Those that stick with me are a hardy bunch.

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6 comments

  1. I am also with Flo. Our 6 month premium jumped 9% after being steady for 2 years or so (we are over 5year customers “Diamond” with no accidents that trigger a raise. I chatted a rep and they gave me some boilerplate story about statewide (Florida) re-evaluation blah, blah. So I pulled the underwriting document and saw the same line – “We did not give you our lowest premium due, in part, to information contained in your credit history.” The car insuracne account holder is going through a short-sale which looks like a default at this stage so I am assuming that is what is pushing it up.

  2. Nice to know I’m not alone! I just really hope that over time I can untangle some sense of a) the degree to which the increase was credit driven and b) the degree to which that was related to the churning. I really am inclined to think a small degree times a small degree means the absolute effect if pretty minimal but I hate the doubt.

  3. […] a week ago, I posted about a concerning disclosure included in our car insurance that indicated our rate not the best […]

  4. Goto creditkarma and check out your insurance score. i bet it’s dipped a bit. Mine’s gone done 150 points in the past year of churning, wife’s has well. 900-ish to 750-ish. Our “real” credit scores are pretty much higher than they were – all across the board – high 700s.

    We did just change insurance for home & car (agent moved jobs) and when I mentioned it to here, she said don’t worry about it and if it affected our rate, she’d talk to the underwriting department and explain it.

    It is weird because the insurance cos. says a higher score means lower claims but no claims, higher credit scores and my transunion insurance score is in the tank. but it didn’t matter because our rates went down and the coverage improved.

    i’d go see an independent agent and have a chat. the human touch can work wonders… 🙂

    1. Richard, thanks for the suggestion. I did pull my CK insurance score in the updated post here. Oddly, it’s went up but still is only “fair”. Picked up the new car last weekend and drove it 1100 miles home and needed to settle on insurance so switched companies. Good suggestion though that an agent might have some sway. I didn’t try that though I spent a lot of time on the phone with our current company and no one seemed to have any discretion whatsoever. Also noted on the exit survey with them that driving away a customer that’s been with them for 12 of the last 13 years about whom they have tons of data and a very positive claims history seemed unfortunate for their business. I’ll probably put this one to rest for the moment and come back to it near my renewal in 6 months.

  5. You had no auto loans or leases reported opened within the last 10 years.
    The average open date of all your reported loans and accounts was less than 7 years ago.
    You applied for credit at least once in the last 2 years, excluding auto or mortgage applications.

    I get paperless statements so I didn’t notice this till after 60 days. We’re pretty financially stable. Bought a car last year, paid in full. I don’t see how not having a car loan negatively affects insurance rates.
    Washington Mutual is now Chase, Wachovia is now Wells Fargo, yes I opened a new account because I didn’t like Chase.

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