Using your credit report to determine your insurance premium

[pandybat]

This is a big issue here in Missouri right now. Every state has their own issues with it as well. Anyone read anything on this lately?

My sister was affected by the use of her credit score in order to determine the amount of insurance she was to pay.
She searched for a new insurance company for her car. She went with one company that quoted her a premium. She paid them the money to get her policy started. It was something like $250. A few days later, they called and said that because of her credit score, she had to pay a higher premium to stay with them. So she told them to send her money back and she was going to go with another company. They only sent back part of her money. They took out money for the credit check and money for the few days she was insured with them. Shouldn't they have run the credit check BEFORE they quoted her? I don't think that they need to look at a persons credit score in the first place to determine your insurance premiums. But if they do use credit scores, they need to check there first BEFORE quoting you a price. They shouldn't be able to quote you one thing to get you started as their customer, get your money and THEN do a credit check to see if you actually qualify for that quote. My sister was furious. She ended up going with another company and had to pay again to get her insurance started up. This company did not use credit scores. She filed a complaint with the Missouri Department of Insurance about the other company that ripped her off. What do you all think of this?

Interesting article: Calvin Call needs a 'wakeup call'. He's all for this procedure of checking credit scores. He needs to find out how it would affect him should he get sick, lose his job and get behind in his bills before being so supportive of this issue.

[Only registered and activated users can see links. Either login above or Register Now]

Credit scoring unfair way to set insurance cost, state says
Industry denies it hurts poor or minorities more.

No hail damage. No thefts. No broken windows.
Clyde Griffith has never filed a claim against his homeowners insurance.

Yet in 2002, his premium tripled from $750 a year to $2,200.

Why?

Along with many Missourians, Griffith's cost jumped when his credit score fell because his insurance company uses credit history as a risk indicator. Most auto and homeowners insurance companies link the two, but it's a relationship Missouri regulators would like to sever.

"I think it's lousy," Griffith said. "... I think there's other ways they can determine if someone's a deadbeat."

The Missouri Department of Insurance goes further.

"The end result of credit scoring is that it disproportionately hurts poor or minority families," said Randy McConnell, department spokesman.

That's what the agency found in a study published in January. Gov. Bob Holden immediately proposed banning the use of credit scores in pricing insurance policies. And today, Missouri will start working with a dozen other states on a nationwide credit score study.

"It really appears to be a multistate witch hunt in an election year," said Calvin Call, executive director of the Missouri Insurance Coalition, a state association that represents insurance companies.

He calls credit scoring a statistically justified tool in setting premiums and cites studies that show a link between poor credit and high risk.

"I think rewarding those who pay their bills on time is good business. Should we reward those who don't manage their finances?" he asked.

To Griffith, the issue isn't quite that simple.

He's embarrassed he fell behind on his bills. Embarrassed his credit score is bad. But he's also frustrated because the system doesn't seem fair.

Insurance companies "have the idea that if you have poor credit, you're a poor risk. I told them there's circumstances on everything," Griffith said.

In Griffith's case, those circumstances started in 1996 when the shipping service he managed left town.

Since his daughter also worked there, she lost her job, too. Then, a month later, a third family member was diagnosed with cancer and had to stop working.

"So we went from a three-salary payroll to zip almost overnight," said Griffith, who is now nutrition director for Northview Senior Center.

"I got behind on everything. It just snowballed. Actually, I'm still recovering on some of it."

Griffith was out of work for only three weeks. It was enough.

His credit score fell. His insurance costs tripled. He complained, and the company dropped his premium to $1,1,60. But it also reduced his coverage.

Griffith switched insurance companies. And eventually, he filed a formal complaint with the Department of Insurance.

The department hears many concerns, but in 2003 it had only 25 formal complaints, down from 86 in 2002, said McConnell. Since the agency has no legal authority, many people don't bother filling out the required complaint forms, he added.

Still, some are mad enough that they do.

Larry Cottengim, a 62-year-old office manager, saw the premium on his Nixa home jump from $474 to $1,065 in 2002.

He'd never been late, never missed a payment, never made a claim.

The problem? His credit was overextended.

"That happens to people," he said. "... But I don't think it should have any bearing on" premiums.

Nancy Evans had a stroke in 1999 at age 45, went on disability and fell behind on her medical bills.

Suddenly the premium on her north Springfield bungalow doubled.

"I know people on the south side with much nicer houses than me and they pay a lot less," Evans said. "I guess they think I'm a bad risk because I don't have much money."

The use of credit scores has been boiling into controversy for the past few years, said Tom Montileone, president and chief operating officer of Barker Phillips Jackson, an employee-owned insurance agency in Springfield.

"The big question is: Is it useful? And even if it is useful, is it fair?" he said.

Insurance agencies do not have any influence on whether or not insurance companies use credit scores in setting premiums. They just run the credit reports, with client permission, if the company requires it.

But in the past few years, the number of companies that require it has grown. BPJ doesn't work with any that don't.

Many states have also begun regulating the practice.

Some have decided that unpaid medical bills cannot be used to lower credit scores. California has banned credit scoring's use in auto insurance, and Maryland has banned its use in homeowners insurance.

But no state has yet entirely banned it. And that's what Holden has proposed.

If it were banned, it wouldn't significantly affect insurance companies, said the insurance coalition's Call.

They would fall back on the other pieces of the risk-judging puzzle, such as the age of a home or car, safety features and so on.

But there's no reason to take away the credit score piece, he said. "There's no justification not to use them. They're objective, colorblind, income-blind indicators of risk."

They are also a "black-box" technology, said the Department of Insurance's McConnell. No one knows exactly what matrix is used to determine credit scores, especially since so many different companies do it.

He agreed that outlawing them would not hurt insurance companies. "Believe it or not, before credit scoring was used, companies used to price policies," McConnell said.

But it might help people, he added.

For someone like Griffith, it would at least take away some of the frustration.

"I don't get real mad real often. I'm easygoing," he said. "But this was real frustrating because it felt like there was nothing I could do."

[bestmidwest]

I think that's a terribly deceptive practice, and I believe that your sister should have gotten all of her money back. I had a somewhat similar situation where my homeowner's insurance raised the amount that the home was insured for astronomically without telling me. I didn't find out until I received my year-end statement. I dropped them like a hot potato..now my insurance is $700 less per year.

I sort of understand that there is a connection between credit scores and potential for insurance claims, but I also think that this practice does prey on people who are already hurting. It's like kicking someone while he's down. If someone makes excessive claims, that's when their insurance should go up...

[pigsurf7]

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.

[Only registered and activated users can see links. Either login above or Register Now]

[Only registered and activated users can see links. Either login above or Register Now]

[Only registered and activated users can see links. Either login above or Register Now]

[Only registered and activated users can see links. Either login above or Register Now]

[Only registered and activated users can see links. Either login above or Register Now]

http://www.pciaa.net/sitehome.nsf/lcpublic/9/$file/2004 Credit Brochure.pdf

[hmsram]

Luckily I have had the same provider for over 10yrs and they have not gone to quoting by credit scores. Good thing because I do not have the best credit in the world, trying to get things back together but I would still be furious if they went to going by credit score because I have never made a claim and I carry 4 policies with them...

They should have checked your sister upfront if that was their policy and not notify after the fact. They should not make her pay for the credit check either. The company wanted the credit check so they should pay. And probally they will charge her more than what they paid for the credit check also.

[cujo0123]

I had perfect credit until an auto accident that was not my fault caused me serious injury. I was unable to work for over 2 years and of course my credit got very bad. Its not my fault my credit is bad but lawsuits take time and creditors are not forgiving for that kind of thing. This is just another way for the rich to take advantage of the poor. I pay more now for auto insurance even though I've never been at fault for anything just because of my credit. These crooks know it will take a few years for bad credit to be fixed so that gives them several years to charge more.

[gult]

There are a lot of good articles about credit report on [Only registered and activated users can see links. Either login above or Register Now], there is all kinds of information about credit reporting and scores online, its very helpfull.