by Chad Yoder, Personal Lines Manager
One of the biggest changes we have seen in the insurance industry is the use of ones credit in the underwriting process. This underwriting factor has received a lot of attention over the past few years and, although the topic has cooled off a bit in some states, in other states it is still a big source of controversy. Regardless of where you stand on the issue, for now the use of credit is here to stay and should be understood when reviewing your insurance coverage.
So What Does My Credit Have To Do With Insurance Anyway?
Let me first clarify the use of credit. It’s a known fact that multiple credit checks can affect your credit score; but, insurance inquiries do not alter your credit score in any way. However, they may still show up on your credit report. Also, the credit information the agent receives does not show detailed items such as mortgages, bank loans, credit card balances, etc. This information is translated by the company into an “insurance score” with each company determining the criteria they feel are attributes of responsible or careless drivers. Here are some examples of the criteria used:
- The number of revolving accounts, such as credit cards, opened in the last 30 days
- The number of open retail accounts (Kohl’s, Old Navy, Sears, Macy’s, etc.)
- Length of credit history
- Number of late payments more than 30 days late
- Number of derogatory accounts
Predicting With Credit
Although the use of credit scoring is still being debated, insurance companies insist that there is a direct correlation between the information listed above and the probability of loss. Since the introduction of credit-based rating, statistics are beginning to show that those with poor credit habits are far more likely to hand in insurance claims. If this pattern continues, then charging more for those with poor “insurance scores” and rewarding those with good ones can and will keep insurance premiums consistent and help insurance companies accurately identify traits of probable loss.
What You Can Do
The good news is that there are ways for you to make sure that you are getting the best insurance rates possible by simply monitoring your credit habits. Make sure that you are aware of any adverse information in your credit history by ordering a free credit report every year. You can do this from the Federal Trade Commission website or going directly to www.annualcreditreport.com. A simple call can usually clear up any issues and improve your credit score. A credit report can also help detect if you’ve been the victim of identity theft.
Many companies have only recently introduced credit into the underwriting process. This is also true for some companies that FIFS represents as well. If you have exceptional credit and have not reviewed your personal auto insurance policy with us recently, now may be the time to call. We may be able to save you money by re-quoting your policy with the same company or several other companies that we represent. Please call 1-800-332-4141 today to discuss your options.
FIFS Connection, Winter 2007, Vol.4, No.1
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