I happen to be a Personal Lines Underwriter for a regional insurer in Ohio. Insurance scoring has not only made our company more competitive & more profitable, but we actually
reduced the rates of more than 65% of our Personal Lines (home & auto) insurance book by introducing the concept. Like most laws of large numbers, insurance scores are a predictor of losses. Will everyone with poor credit histories have losses? Not necessarily, but almost 75% of the loss experience in our book of business is attributed to accounts with poor scores. The concept for most carriers is used for pricing-and allows a company to not have to raise the rates for everyone as much or as often as we may have in the past. Those folks with high insurance scores (and less likely to have losses) have been subsidizing those that have poor insurance scores.
FYI-insurance scores have
nothing to do with income & location. I underwrite an urban area of Ohio as well as rural surrounding areas as well-location has nothing to do with it! And to be honest, I actually see poorer insurance scores for people who have $500,000+ homes (because often times, those folks are living outside of their means, even though they may have larger salaries). And on a side note, one of the largest auto insurers in the country (Progressive) has been using the concept far longer than anyone else, and when you receive the information about "competitors that offer better rates" they were steering folks to carriers that did not insurance score and those carriers often were hit with poor loss experience (adverse selection) from that practice. Has insurance scoring use really affected Progressive's ability to be competitive, grow & be profitable?
What happened to your sister does seem very wrong-my company cannot issue a new policy or quote a new policy without that insurance score being ordered upfront. Also, any time an insurance score is ordered for rating purposes or any adverse action, you have the right under the FCRA to obtain a free copy of your credit report-but it is your responsibility as a consumer to review that report for inaccuracies & correct any information that is wrong with the individual credit card company, bank, etc. In my experience, most companies with amend your policy rating if your score changes after correcting inaccuracies. But overall, consumers benefit from this practice. And if you happen to have a poor or "below average" insurance score, chances are you know completely well why that is the case-and most carriers have no specific knowledge of the items on your credit report-we don't want to know that info as it is very personal and really the consumer's business, not ours on the specifics. If you really want to become more aware of the studies out there (and also get some great info as a consumer), check our the following.
http://www.ask-epic.com/Publications/A%20Critique.pdf http://www.ask-epic.com/Publications...ces_062003.pdf http://www.ask-epic.com/Publications...res_062003.pdf http://www.michigan.gov/documents/ci...re_35091_7.pdf http://www.tcais.org/insurance/credi...snetcredit.pdf
http://www.pciaa.net/sitehome.nsf/lcpublic/9/$file/2004 Credit Brochure.pdf