Are credit-based insurance rates the new insurance scam?
May 4, 2007 1:45 PM Subscribe
What's the real story with Insurance Credit Scoring?
My insurance agent called and offered to rewrite my auto policy based upon my Insurance Credit Score. He said that based upon my excellent rating (a "1" out of 10), I would save a tremendous amount (50%) of money on my policy. When I asked him to explain how the ICS is different from a traditional credit score, he tried to explain it to me, but in the end said that the companies that come up with the score use a "proprietary" formula for calculating the scores, based upon credit history, stability, etc. Some other points: if I switch to the credit-based score, I cannot switch back to a traditional policy, and the insurance company would repull my score every three years to determine rates.
This just seems problematic to me. Googling this issue tells me that it's problematic to other people too, for lots of reasons. For one thing, my future rates will not be based upon my accident or claim history alone, but my credit. I don't envision my credit going south in a hurry, but something just doesn't smell right here.
Does anyone know the real story behind these Credit Scores? And is this the new reality of the insurance industry, whether I like it or not? I'm not complaining about saving a ton of money, but doesn't this seem like a tremendous risk?
(The company is Allstate and the State is NH)
My insurance agent called and offered to rewrite my auto policy based upon my Insurance Credit Score. He said that based upon my excellent rating (a "1" out of 10), I would save a tremendous amount (50%) of money on my policy. When I asked him to explain how the ICS is different from a traditional credit score, he tried to explain it to me, but in the end said that the companies that come up with the score use a "proprietary" formula for calculating the scores, based upon credit history, stability, etc. Some other points: if I switch to the credit-based score, I cannot switch back to a traditional policy, and the insurance company would repull my score every three years to determine rates.
This just seems problematic to me. Googling this issue tells me that it's problematic to other people too, for lots of reasons. For one thing, my future rates will not be based upon my accident or claim history alone, but my credit. I don't envision my credit going south in a hurry, but something just doesn't smell right here.
Does anyone know the real story behind these Credit Scores? And is this the new reality of the insurance industry, whether I like it or not? I'm not complaining about saving a ton of money, but doesn't this seem like a tremendous risk?
(The company is Allstate and the State is NH)
IMO, it is the new reality. Empirical evidence links bad credit to being a bad insurance risk, which makes sense if you think about it. From the insurance company's perspective, can you think of any other pre-existing number that is so easily obtained and so nicely sums up how responsible and trustworthy somebody is? I'm surprised it took them this long.
Barring some law which specifically prevents insurance companies from using credit scores (which I think has been attempted in a couple states), I think you will see all insurance companies using this in the future. If your credit score is good, why not use it? I think you'll be forced to at some point anyway, so might as well save some cash now.
posted by jtfowl0 at 3:49 PM on May 4, 2007
Barring some law which specifically prevents insurance companies from using credit scores (which I think has been attempted in a couple states), I think you will see all insurance companies using this in the future. If your credit score is good, why not use it? I think you'll be forced to at some point anyway, so might as well save some cash now.
posted by jtfowl0 at 3:49 PM on May 4, 2007
Oh, do NOT go with credit scoring. We just lost an opportunity to save half on our homeowners insurance ($1300 instead of $2534) because of our poor insurance credit score. Keep in mind that your insurance score may or may not have anything to do with your beacon score. Our beacon scores are in the 760s, but we cannot save on our insurance because we have "opened too many accounts in the past 10 years." Apparently it's not ok to buy cars or a house. Count me in for wanting to pass a law that it's illegal. Needless to say, I'm pissed off.
The explanation I got was that statistically speaking, people with numerous open credit cards or accounts tend to make more claims against their insurance than those who have fewer accounts open. I can appreciate the math, but I'm still really pissed. I mean, come on, 760 beacon and I have bad credit?
I think it was Choicepoint that I called to get the explanation.
posted by orangemiles at 4:34 PM on May 4, 2007
The explanation I got was that statistically speaking, people with numerous open credit cards or accounts tend to make more claims against their insurance than those who have fewer accounts open. I can appreciate the math, but I'm still really pissed. I mean, come on, 760 beacon and I have bad credit?
I think it was Choicepoint that I called to get the explanation.
posted by orangemiles at 4:34 PM on May 4, 2007
Remember, the insurance company is trying to measure something totally different from a lender. A lender wants to know whether they will get paid back; the insurance company wants to know whether you will have an accident. So naturally the scoring model is different. (There are different FICO scoring models for three different types of lending already.)
I don't know how exactly the insurance credit score correlates to claims, but it must. Insurance companies have to pay the credit bureau for each score, and they wouldn't do that if they weren't certain to, on average, save more than they are paying.
posted by kindall at 8:45 PM on May 4, 2007
I don't know how exactly the insurance credit score correlates to claims, but it must. Insurance companies have to pay the credit bureau for each score, and they wouldn't do that if they weren't certain to, on average, save more than they are paying.
posted by kindall at 8:45 PM on May 4, 2007
This thread is closed to new comments.
posted by zek at 1:53 PM on May 4, 2007