What Other States Use Credit As a Rate Factor?

[Kapture]

And do you agree with it?

All standard Insurance Companies in Michigan will factor credit score (insurance score) in the rate. There is talk about state insurance reform to get that changed... but untill that gets passed, I have to tell some of my customers that your insurance rate are high because you have lousy credit.

What erks me is they say the worse your credit, the higher chance for claims to be filed... ok, fine, then why are the liability only policies being credit checked?

Michigan as a State is struggling through this depression... and its residents cant seem to catch a break anywhere... even on their insurance policies.

 

[1manshow]

I think Progressive was the pioneer in this area of insurance scoring..then everyone jumped on board. We have several carriers who vary widely on how much emphasis they put on the pure credit score portion for tiering. Maybe you would do well to search out carriers who will fit better for your clients with lower credit ratings.

 

[catowned]

Can the customer opt out by not providing their social security number?

 

[CharityQuotes]

I am in Michigan as well and I can relate... Recently had a real nice client come in who went through a divorce... Because of the divorce she had to file for bankruptcy (I dont know many details about that, but I know she is a good person) and her insurance score is now horrible of course...

Sad that she is trying to get back on her feet and we now are asking for double what her old policy was...

 

[Josh]

Can the customer opt out by not providing their social security number?

Nope, they'll want to find out who the prospect is anyway and they'll get that off the license number usually. Even if they couldn't find it, they'd assume the worse and rate accordingly.
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And do you agree with it?

All standard Insurance Companies in Michigan will factor credit score (insurance score) in the rate. There is talk about state insurance reform to get that changed... but untill that gets passed, I have to tell some of my customers that your insurance rate are high because you have lousy credit.

What erks me is they say the worse your credit, the higher chance for claims to be filed... ok, fine, then why are the liability only policies being credit checked?

Michigan as a State is struggling through this depression... and its residents cant seem to catch a break anywhere... even on their insurance policies.

I do agree with it. When I was 18, with no accidents or tickets I paid $300/month for car insurance. Why was it so much? I was a young male driving an expensive SUV. Why is the rate higher for young men who drive more expensive cars? Because young men make bad decisions and it can get way expensive with a cheap car, let alone something large. I love the way actuaries look at premiums. They don't guess about things, they look at the cold hard numbers and they know what affects loss ratios and what doesn't. If it weren't for the ACLU and the like we'd probably have rates based on ethnicities as well. Maybe we'd find that if you're a caucasian you're more likely to be in an accident than an Indian or Mexican. Even if it's true that the loss ratios are different from race to race (which I'm sure they are), they can't adjust the premium for it because it'd be litigated to hell and back. The fact of the matter is that people who have poor credit have usually made poor financial decisions. If they make poor financial decisions it's entirely possible they'll make poor driving decisions, or at least that's what the actuaries have come up with.

So that's why I agree with it. Not that I don't think it's a raw deal when you're credit takes a hit and then everything gets more expensive, but I think insurance actuaries and underwriters should be able to adjust rates based on the facts and less based on politics and the court of public opinion.

 

[Aram Fingal]

When I first started in the insurance industry I was very uncomfortable with the whole credit scoring thing. However I've seen the data enough times to understand that there is a direct correlation between scoring and frequency/severity of loss. It gives the companies not only the ability to charge higher premium to the people who are more likely to have a claim (and that includes liability claims when they hit other people) and to charge lower premiums to the people who are less likely to have claims. Most companies make way more money off the people who they charge the least to, than the people they charge the most to. In fact, most of them lose money on the people they charge the highest rates to.

And your credit score isn't always all that goes in to calculating the insurance score. I had a client who I knew had a 780 credit score, but his insurance score sucked. I don't know why, but it might have been because he had something like 20 mortgages on a bunch of different properties. He's had enough claims that even with all the policies he's paying for, the company has paid out more than they have collected.

Every couple of years the insurance commissioners try to put a stop to insurance scoring and the insurance companies have to go back to court to prove that they are justified in using it. Every time the companies win, because they can show the data that supports it. I kind of suspect the commissioners just do this to score brownie points so they can get re-elected, and wonder if they really have any expectation of changing the law.

As the above poster mentioned, the actuaries don't guess about these kinds of things or just make stuff up to raise premium. It's all based on cold hard numbers and it has to be provable and justifiable or they would never get it through the rate filing process. As much as we may or may not like it, the results are measurable, accurate, and provable.

 

[djs]

After working with used car dealers to insure cars, I can say from what I saw, lower credit scores lead to FAR more claims. Not with everyone, but enough that it makes it a very reasonable rating factor.

I do think times have changed over the last 2 years. Many people have gotten themselves in a bind that they normally wouldn't. You start getting 10% + unemployment for a year and even people who had a decent savings account start running into some problems.

Fortunately, California doesn't use credit scoring, but sometimes I wish they would. It would be a disaster right now though.

Dan

 

[Kapture]

And your credit score isn't always all that goes in to calculating the insurance score. I had a client who I knew had a 780 credit score, but his insurance score sucked. I don't know why, but it might have been because he had something like 20 mortgages on a bunch of different properties. He's had enough claims that even with all the policies he's paying for, the company has paid out more than they have collected.

I have no problem with the cold hard facts. IMO, If they are going to use insurance score... the companies should tell the consumers what was taken into consideration and what they can do to improve it. I have customers where the home and auto product used the same scale of say... 1-16. They were a 1(best score possible) on the home, but a 9 on the auto... Really?!

 

[Crabcake Johnny]

....you can't even rent a car with poor credit since their stats showed higher accident rates with people who have poor credit.

That said, everyone gets swept up in the net which is tragic. There are reasons for poor credit that are largely out of someone's control who could be the worlds safest driver.

Sorry for the tangent, but try getting a solid job with poor credit.

 

[moonlightandmargaritas]

Can the customer opt out by not providing their social security number?

Of course they can - but the insurance company can also opt-out by not offering coverage.