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| Yes | 93% | 505 votes | Total: 542 votes | |
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Add to FavoritesActually, it is the law in many places that insurance companies must inform you that your premium is affected by your credit score. However, as an insurance agent, I found that very few people pay attention when you tell them this fact; and, even fewer actually read the disclosusre statement that comes with their policy.
This results in people who claim that they were never "told that" about their policy. These are the same people who signed or initialed a form stating understood this fact at the same they signed the application for the insurance policy.
Regardless of whether they remember this fact or not; this is a fact that they should be informed about. A poor credit score can cost them hundreds of dollars in premiums; if they have bad credit and they do not take steps to improve their credit scores. Almost all insurance companies that use credit scores to set their rates, check those same scores on an annual basis; and, if the score improves the rate is lowered. However, if the credit score gets worse, the company does not increase the premium; your rate is set at the highest credit score that you have while you are insured with the company.
This is an important fact to know. If you have something go wrong with your credit score; you are better off staying with your current insurance company until your credit score improves again. When your credit score drops, that is not th etime to go shopping for a new insurance policy. Also, if you know your credit score is low; you should look for a company that does not use credit scores to set your premium. There are still a few companies that do not check your credit score. However, companies that do not use credit scores have higher rates overall. While these companies will save you money if you have a low credit score; they will also charge you a lot more than you would pay if you have a good credit score and get insured by a company that uses credit scoring.
If you are worried that you do not have any credit, this is not a bad thing. Companies that use credit scores automatically assign a a good rate to anyone without a credit score. They know that these people do not need credit. They are able to handle their finances by paying cash for everything they purchase; this makes them good credit risks.
Whether you agree with the practice of using credit scores to set insurance rates or not; statistics do show that people with high credit scores file fewer insurance claims on average than people with low scores. This actually does make sense if you look at the situation. People with good credit pay more attention to details and are less likely to have accidents in the first place. Also, people with good credit scores are more likely to have the money to take care of small claims so they never get reported in the first place. A third reason people with good credit scores make good customers, is that they are less likely to let their insurance polices lapse for lack of money.
The fact remains that any insurance company that uses credit scoring should inform theer customers of this fact whether it is the law in their location or not. It is simply good business, even if they do forget that they were told about this policy as soon as they walk out the insurance office door.
Learn more about this author, Ginger Kazay.
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No
Having been an underwriter in the insurance industry for over thirty years, I've found more carriers rely on information from credit history as a method of determining acceptability of a client or the premium charged. I disagree vehemently. In my experience, when an application crossed my desk, even the perfect client can lose money for the carrier, with or without a favorable credit report.
While actuaries employed by the companies can quote statistics and studies, profitability is still a roll of the dice. Insurance is based on the law of large numbers. Basically, in layman's terms, the law of large numbers means that the more people you are insuring, the easier it is to predict losses within certain parameters. If you use this basis, then credit reports have absolutely nothing to do with the law of large numbers. It's simply Insurance 101 and credit reports are not viable if the law of large numbers remains a sound practice. I've found that actuaries take out the human equation, meaning they deal strictly with the numbers and those numbers are based on the inevitable law of large numbers.
Let's visit the credit report topic and try to give the actuaries some defense. First of all, there are only a few major credit reporting agencies in the United States. All contain virtually the same data. How reliable are they? Usually, the reports are mostly sound, given recent history. However, how many clients have had to fight to remove strange or incorrect entries? Is there any recourse for an individual denied insurance based solely on an incorrect credit report? The Fair Credit Reporting Act says there is, but in the case of insurance, probably not. By the time an individual receives notice that they were denied insurance based on a negative report, they've usually moved on to find another market for insurance. I can honestly say that if a prospective insured advised their retail agent that the credit report was wrong, as an underwriter, the first words out of my mouth would be tactfully worded but basically, "Prove it." Meanwhile, the prospective insured dukes it out with the credit reporting agency which could take months. In the case of auto insurance, they, like most, need it yesterday. They simply tell their retail agent to find another market, that won't go to a credit reporting agency. These alternative markets that don't utilize credit reports could result in higher premiums. They pay the price and the originating company never hears from them again, regardless to whether the issue has been cleared. Unfair? No doubt about it, it is unfair if the report is incorrect.
Further, I once visited a bankruptcy court and was surprised at what I learned. I talked with several attorneys and they quoted statistics about bankruptcy. They claimed that upwards to eighty percent of all bankruptcies was a result of medical bills. Do these outstanding medical bills reflect one's insurability? I personally don't think so. Let's review the case of a couple on a fixed income and unfortunately one of them becomes ill. We all know the state of health insurance in our country so it's easy to make the leap of what the couple's medical bills are. On a fixed income, with literally no way to repay the balance of what is owed even after their insurance is taken out, they have no recourse but to file for bankruptcy. Does this reflect their driving standards or how they pay their mortgage? My opinion is that it does not.
It's impossible for every company to know in great detail what each individual's situation is. Each is different and the underwriter should rely on the retail agent for an accurate depiction of any given risk submitted. Communication is vital and the credit report should not be the basis of acceptability and premiums charged. It takes out the human quotient and after all, who created the industry of insurance, but humans? Let's take the issue of whether the company should inform a prospective client about how their premium has been changed due to a credit score out of the picture. Credit histories should not reflect premiums charged, period.
Learn more about this author, Maureen Bordelon.
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