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 Dear
Dr. Don,
I recently switched insurance carriers for both my homeowners
and auto coverage -- each policy was with a different insurance group. When
I got the quote for both, the homeowners insurance was supposed to go from $603
to $498. However, when I received the policy, the premium was $635.
When I asked the agent, he told me I did not qualify for the
company's Gold Star discount because of an auto accident I had last year. How
does an auto accident make an impact on my homeowners insurance. Is such a practice
legal?
-- Keya Consumer
 Dear
Keya,
It's common for an insurance company to offer
a discount when you carry both auto and homeowners
insurance policies with that firm. That said,
the quote you get on the policies will be based
on your past claims history and other factors,
such as your credit history. In your case,
the claims history on your auto policy was used
as a factor in pricing your homeowners coverage
and determining your eligibility for the firm's
Gold Star discount.
I asked Eric Wiening, CPCU and a
colleague of mine at The American College, to
respond to your question. Here are his comments:
"Insurance
is a competitive business. Although various states may impose certain constraints,
each insurance company is generally free to develop its own rating and underwriting
standards in an attempt to attract the customers it wants and, at the same time, to
charge rates that will develop premiums consistent with the insurance company's
expected losses and expenses. Different insurance companies may use different
underwriting and rating criteria. Customers may, of course, compare the premiums
charged by different insurers.
"Often, an insurance company
has two or more rating 'tiers' for the preferred
(lowest-risk), standard and nonstandard (higher-risk)
drivers. Obviously, the lowest rates would apply
to the drivers in the lowest-risk category,
and vice versa. Because different insurers may
use different criteria for determining eligibility
for each tier, an applicant might fall into
one insurer's preferred tier and another's standard
tier. I was once in that situation myself. Currently,
there is some controversy over GEICO's use of
occupation and education as rating criteria,
but this practice has been upheld in at least
one state.
"It appears from the Gold Star
reference that the reader did not meet all standards necessary to qualify for
the insurer's lowest rates tier. Based on the information here, I would infer
that one of the eligibility criteria established by this insurer was 'no insurance
claims of any kind during the past x year(s).' "The reader
might not like to hear it, but the insurer apparently believes -- not without
some logic -- that homeowners who have not had a recent insurance claim of any
type are somewhat less likely to have a homeowners claim than those who did. This
might be only one of several criteria that apply in combination to establish eligibility
for the preferred class. "What can the reader do? Pay
the premium if coverage is needed immediately, and then shop some more (policies
can be canceled midterm by the policyholder) or shop again at renewal time. In
all likelihood, the insurer is not bound to provide the coverage at the quoted
price if the quoted price was based on incorrect information. In fact, providing
insurance at less than the filed rates for an applicant in a specific category
would likely violate the law. "All else being equal, it
is often advantageous to buy auto and homeowners coverage from the same insurer.
I believe some offer a discount when this happens. In addition, coverage is likely
to be best coordinated between the two policies when handled by a single insurer.
It doesn't happen often, but there are borderline cases where it might be argued
which policy applies. Consider, for example, somebody who slips in the driveway
while getting out of a car, or theft of snow tires that have been dismounted from
the car and stored in the garage. Last but not least, price is not the only factor
to consider when selecting an insurer." An
insurer's underwriting standards can't discriminate, but as long as they can show
that the factors they use in underwriting coverage aren't discriminatory, they
can use them to make underwriting decisions in how they price your policies. Your
auto accident cost you the Gold Star, but that doesn't mean you didn't benefit
from combining the two policies with one insurance company.
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