by Guest » Mon Aug 16, 2010 09:22 am
I'm really shocked to see so many auto insurers checking on our credit scores. I don't think they really need to do it for auto insurance. Do they? I'd like to go for a good insurance co. that offers coverage on the basis of other relevant factors e.g. age, driving record etc. Am I going the wrong way?
Posted: Thu Aug 26, 2010 04:54 pm Post Subject:
The use of credit scores to determine a rate for insurance coverage has long been a controversial subject. Insurance shoppers question how their credit score could possibly play a role in whether or not they will file a claim while numerous insurers cite there is irrefutable statistical data to prove there is a direct correlation between an individual's credit score and the cost that insured will bear on the company in claims.
In December 2004, the Texas Legislature conducted a study on credit scoring. Their findings showed there was a strong relationship between credit scores and claims experience on an aggregate basis. However, credit scores, to some extent, may be reflective of other risk characteristics associated with claims. The report can be found at http://www.tdi.state.tx.us/reports/documents/creditall04.pdf
Posted: Thu Aug 26, 2010 04:57 pm Post Subject:
The Insurance Information Institute issued a statement on credit scoring. It is their position that insurance scoring works because it provides an objective and quantifiable means by which an individual's future performance under the terms of an insurance contract can be assessed. http://www.iii.org/media/hottopics/insurance/creditscoring/credit_paper/
Posted: Thu Aug 26, 2010 06:33 pm Post Subject:
Gotta love the wording of some of those posts...
Bottom line, statistically speaking a person with a lower credit score is more likely to file a claim. This is _NOT_ the same as more likely to incur a loss... a _very_ important difference.
In other words, insurance companies charge a higher premium for people who are more likely to use the service they are paying for. Read that again. So basically an insurance company is charging more if they think people might use the the policy they are already paying for. Two people paying for the same promise, same risk but the insurance company thinks one person might actually call them on their promise to pay so they charge a higher rate.
Insurance companies should charge a rate based on the _risk assumed_ and the exposure... period. They should not be allowed to charge a premium because someone is more likely to use the product they are already paying for.
Posted: Fri Aug 27, 2010 04:28 am Post Subject:
Insurance companies should charge a rate based on the _risk assumed_ and the exposure... period. They should not be allowed to charge a premium because someone is more likely to use the product they are already paying for.
That's precisely the reason a person's credit score cannot be used as a rating criterion or as the reason for a decline in California.
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