Consumers could save more than $13 million a year in premiums under a proposed new rule unveiled at a public hearing in Olympia yesterday and scheduled to take effect in the spring...
Consumers could save more than $13 million a year in premiums under a proposed new rule unveiled at a public hearing in Olympia yesterday and scheduled to take effect in the spring, state regulators say.
The rule would crack down on an optional form of insurance known as “credit insurance” that is offered in connection with auto sales and appliances, among other products, bought on time. Credit insurance kicks in, paying off or canceling debt, when the consumer dies or becomes disabled and can’t pay off creditors.
Reform is necessary, says Insurance Commissioner Mike Kreidler, because not enough money is being returned to consumers who buy credit insurance. Under the proposed rule, credit insurers would be required to pay out at least 60 cents for each dollar of premium they collect. On average, they have been paying out 38 cents per dollar, according to the commissioner’s office.
Kreidler acknowledged that credit insurance makes sense for consumers “who don’t have any other insurance. This is a product that has some value. I’m not saying don’t buy it, just that [consumers] should get a reasonable amount [back] for what it’s costing.”
Kreidler said his office receives about 100 complaints a year from consumers related to credit insurance. Typically, they complain that an insurance company is resisting honoring a claim, he said.
The proposed rule also would limit the commission that credit-insurance sellers can make to no more than 25 percent of the total premium. Kreidler said the product has become a “profit center” for a number of businesses because of high commissions. He identified car dealers as a business sector that pushes credit insurance.
Vicki Fabre is executive director of the Washington state Auto Dealers Association, which represents more than 300 new-car-and-truck franchise dealers that collectively sell between 400,000 and 500,000 vehicles a year. Fabre said she had no idea what the “take rate” is for credit insurance.
A credit-insurance-industry spokesman contends the math behind Kreidler’s proposal is flawed. Larry Diehl, vice president with the Consumer Credit Insurance Association, a Chicago-based trade association representing 140 member companies, maintains that the commissioner’s analysis understates the product’s true costs, including maintaining necessary reserves, plus taxes and licensing fees.
Diehl says the bottom line is that the proposal will end up eliminating credit insurance as an option for consumers who need it. Based on a recent study of credit insurance in the mortgage industry, he estimates that 10 percent of consumers opt for the product.
But over the past couple of years, during which some 14 states have adopted reforms similar to what Kreidler is proposing, the volume of business has dropped from about $6.6 billion nationwide to approximately $4.2 billion, Diehl said.
In some cases, the business may have shifted from the companies his association represents to banks and financial institutions that are federally chartered and therefore exempt from regulations adopted by state regulators, Diehl said.
In predicting that the product will become less available if Kreidler’s proposal is adopted, Diehl said he wasn’t “trying to be threatening, just realistic. If it can’t be offered profitably, it won’t be offered.” In that case, he added, consumers lose, too.
Diehl said he had no problem with the proposal’s new disclosure requirements, which call on sellers to more fully explain costs and options, including a clear declaration that credit insurance is not required for credit approval. In addition, the seller must disclose that credit insurance may not be necessary if a consumer has other insurance.
Robert Pregulman, executive director of WashPIRG, a consumer-advocacy group, praised Kreidler’s proposal.
“These new regulations will ensure that consumers can make a more informed choice as to whether or not they should buy credit life insurance,” Pregulman said.
Kreidler has the power to adopt the new rule without legislative action. It is scheduled to take effect April 1.
Peter Lewis: 206-464-2217 or firstname.lastname@example.org