Why are car insurance companies using credit histories to price premiums.?
My premium went up because my credit score is low…What and why does my credit have anything to do with my or anybody’s car insurance. They do not loan money. I pay my premium a year at time so they have the money upfront…Seems like a reason just to screw the consumer.
American Family Mutual Insurance
Thanks for all responences…I have a credit problem because of "stolen ID." ( not resolved at this time)…I have had two claims with the company but because of "uninsured motorist"..There’s another issue. I think uninsured motorist should do 30 days in hole. ( 1970’s rock band "Humble Pie" ) Anyways, 30 days, fined and suspended license. I’m tried of paying (extra premiums, copay) for others mistakes and negligence.
Oh yeah. An acquaintance of my father told my father that his insurance company droped him because of his long term impeccable driving record. Reason. (Possibly unsubstandial and/or specultive) He was due for an accident. True. Not sure, third party.
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March 4th, 2010 at 5:03 pm
Because there is a correlation between credit and claims frequency.
Folks with low credit scores are more likely to file claims. Your premium is based on the risk incurred by the insurance company when they insure you. The bigger the risk….the higher the premium.
Insurance companies may not make loans…..but they are a financial product. Your credit score is only one of many factors they use to determine your premium.
If you have a good credit score, you are rewarded with a better rate.
So, work on cleaning up your credit and improving your credit score and eventually your premium will go down.
March 4th, 2010 at 5:03 pm
insurance companies are betting that you won’t crash your car (car insurance) won’t burn down your house (housing insurance) etc…
Insurance companies feel that,
People with good credit pay their bills on time and are responsible. People who don’t pay their bills on time are viewed as not reliable. Maybe they buy things that are out of their price range because they don’t think before they act, and therefore, they are a higher risk for insurance companies
March 4th, 2010 at 5:03 pm
IT’S JUST ANOTHER REASON FOR THEM TO TAKE YOUR MONEY. YOU SPEND ALL THAT MONEY AND FOR YEARS OR MAYBE NEVER, YOU DON’T GET IN ANY ACCIDENTS, THEN ALL THAT MONEY YOU WASTED IS GONE.
March 4th, 2010 at 5:03 pm
Just another way of determining the risk a person has to the insurance company. People with poor credit scores tend to be higher risk.
Merely another tool, along with factors such as age, gender, ZIP code and driving record.
March 4th, 2010 at 5:03 pm
They shouldn’t oughta be doing that.
In Feb 2007 Allstate paid a $12 million settlement in a class-action lawsuit because of their use of credit scoring in setting premiums. Apparently it’s not a "legally permissible purpose" for accessing your credit report.
why are you with a "mutual" company? you have a bad driving record?
March 4th, 2010 at 5:03 pm
Don’t get me started on this subject. I’ve worked for insurance companies for the past 20 years and think that this practice should be banned (it is in a few states… in those others, people just don’t know its being done).
Basically, it’s been shown that people with good credit tend to have fewer claims. This is 100% correct. But the truth is, there is no connection between good credit and your risk. Read that again… no one can prove that there is.
Look at it this way, who is more likely to file a claim, someone with $100,000 in the bank or someone living paycheck to paycheck? Which of those people is more likely to have a lower credit rating? So what we have shown here is that people with bad credit are more likely to _file a claim under the policy that they are paying for_. This does not mean that they are a higher _risk_… only that they are more likely to take advantage of the policy they are paying for. So really insurance companies are penalizing those people who _might_ file a claim! It’s bad enough when they increase rate when a claim is filed (no problem there) but to increase rates because someone might use what they are paying for?
Some states have understood this and passed on the big pay offs. Those states passed laws against this practice.
March 4th, 2010 at 5:03 pm
Insurance companies run credit checks on applicants because risk assessors and actuarial studies have shown that a person’s credit or financial history is a good predictor of insurance claims. (Actual or fraudulant) Actuaries have found a strong correlation between credit history and insurance claims, and they have been taking credit history into account for some time in states where it’s legal. We have noticed that some are even using more parts of the credit report (like payments over 30 days late) to pinpoint better risk assessment.
Insurance rates are not purely calculated based on credit history. There are other variables such as where you live, the type of car, driving record, etc. The goal of getting all of this information is to correlate the insurance premium rate as closely as possible with the actual cost of potential claims. If you are able to continue to have a clean driving record you should see if your insurance company allows for a safe driver discount or other discounts that will help absorb the higher rate due your credit rating.
There has been a noticeable shift toward lower rates that can be pinpointed to using credit along with many other rating factors. In the past, most insurers based premiums on a few rating factors like type of car, place of residence, age, marital status and driving record. Now most companies focus on at least 30 or more factors. Most companies always used the seven main components of a rate; now many have expanded that number to 300 or more. As a result, drivers with the best records have seen their rates drop as much as 25 percent. The ability to better pinpoint risk, saves all drivers in insurance costs.
But even people with poor driving records are likely to benefit. In the past, drivers with multiple accidents or major violations were only insured by high-risk insurers that charged hefty premiums because mainstream companies didn’t have a system to price or manage them. Because of the ability to price and tier all drivers into a profitable pool, many companies are offering to cover the higher risk drivers, sometimes at much lower rates than those of high-risk insurers.
March 4th, 2010 at 5:03 pm
Right or wrong, they are saying that the lower the credit score is, the greater the risk of a claim. Some states have already banned the practice. Write to your legislators and voice your opinion