Insurance Companies Offer Rates Based on Credit Score?

[Uppsala9496]

I underwrite insurance (did medical for 4 years, and now do directors and officers liability - think enron). I think using credit is a pile of shit. Just my opinion.

Ironically enough, all I do all day is look at financial statements of companies to determine what kind of risk they are and what kind of rates I want to charge (and what kind of enhancements I feel like giving them).
For individuals though, I think it is bullshit. I understand the logic behind it, but I think it's crap.

 

[QED]

Originally posted by: DrPizza

Originally posted by: DisgruntledVirus

Originally posted by: Pliablemoose
LOL, talk about a bunch of BS, the rationale for basing your rates on your credit score is that if you have a good score, you're more likely to cover the accident yourself rather than use your insurance.

It should be illegal, and in some states it is illegal, it's an easy way to stratify exposure of the insurance company, unfortunately, it singles out the poor.

The last goddamn thing I need is more uninsured assholes driving around...

Speaking as somebody that worked in both claims and underwriting I can tell you have no clue what you are talking about and are just saying crap you believe is true, regardless of what the real reasons are.

It is illegal in some states (like CA), but it is not a way to "single out the poor". As I have stated it is ONLY used to help determine rates, so how does that single out anybody? Yes it helps exposure, but it helps us get more accurate rates for the policy. If you prefer we can just blanket everybody, so the people that have never been in an accident pay the same as the people who are in accidents 3, 4, 5 times/yr. You know so its fair and all. Nobody gets a different rate then, its all equal for all.

Ever work in underwriting for insurance? No? Didn't think so.

I think his point is (and I agree to some extent) that people with good credit scores pay closer attention to their finances. Those are the types of people who would be more likely to pay out of pocket for minor repairs - because they're the ones worried that if they file claims, their insurance rates would go up. I'm one of those people. My wife cracked the bumper on her van. We did not file a claim. I was pulling a boat from where we stored it for the winter. My vehicle slide diagonally on some mud; I couldn't stop it. Very small dent on the side. No claim filed.

Who wants to ruin a good record with their insurance company? Those people are more likely to be people with good credit scores.

His premise may have had a little merit to it, but his conclusion is faulty.

The bottom line is, whatever the reason, people with better credit cost less to insure than people with bad credit-- so it is not unfair for the prices charged to reflect that fact. It is not meant to "single out the poor"-- as being rich is not equivalent to having great credit just as being poor is not equivalent to having poor credit.

 

[WaTaGuMp]

Theye did a recent study that PROVES listening to Frank Sinatra will make a person 99% more likely to be involved in an accident. So now I urge all insurance companies to add this question when they are giving quotes, cause this could be a way to increase profits and since thats the ONLY thing they care about it makes sense.

 

[lykaon78]

May have already been said but besides higher claims, it is more expensive to administere a policy to someone with poor credit.

 

[jagec]

Originally posted by: DrPizza

I think his point is (and I agree to some extent) that people with good credit scores pay closer attention to their finances. Those are the types of people who would be more likely to pay out of pocket for minor repairs - because they're the ones worried that if they file claims, their insurance rates would go up. I'm one of those people. My wife cracked the bumper on her van. We did not file a claim. I was pulling a boat from where we stored it for the winter. My vehicle slide diagonally on some mud; I couldn't stop it. Very small dent on the side. No claim filed.

Who wants to ruin a good record with their insurance company? Those people are more likely to be people with good credit scores.

Yes, but that doesn't have much to do with being poor. It just means that you understand money. In many ways poor people with good credit like myself are the most desireable customers, since we're less likely to file claims (can't afford the insurance hike!), drive cheaper, crappier cars more carefully (can't afford to pay for an accident!), and are more willing to live with scrapes, bumps, and cracks in a car which would cost lots of money to fix.

Being poor doesn't mean you have a bad credit score, having a bad credit score indicates you make decisions which will probably end you up in poverty. Am I supposed to feel sorry that people have to pay for their mistakes? If discriminating based on stupid decisions is fascism, just call me Adolf Hitler.

 

[compman25]

Originally posted by: DisgruntledVirus

Originally posted by: Jessica69

Originally posted by: DisgruntledVirus

Originally posted by: xochi
It is common, i'm guessing there is a corelation between good credit and low claims?

About five months ago, my Insurance Company gave me the option of using the old methodology for rates or going to the new credit based methodology and save about $50 per month.

For me it was an easy choice.

There have been a few studies done and he is correct that people with high credit scores are less likely to get into an accident.

Look at it from the insurance companies point of view. They are there to make money ultimately. Every claim we pay out is less money we are making, and we have to get that money back somehow. If a $50,000 car is totaled in an accident, it ends up costing the company (excluding injuries, and other vehicles/property) easily $55,000+. Raising that persons rate by $50-$100/mo will cover some of it, but no where NEAR that figure. So instead we have to recoup that loss from the other policy holders. Meaning higher rates for everybody. We have very good formulas in place that are able to make us profitable, but every claim (and my company has a few thousand calls a day for new claims) costs us much more then we have ever earned from that customer (unless they are a very long term customer which is rare).

You want low rates which is understandable, but in order to give low rates we have to be careful about our exposure (look at Katrina for another example, think about how much was paid out and how much they paid us in the few years they were with us on average). We can give lower rates and be more profitable as a company by insuring people that don't get into accidents and have lots of claims filed. Your credit score is one way we can gauge how likely it is you will cost us more then you pay. It really is better that we check it, as xochi also said using credit history saved him $50/mo.

While all that may be true, income from premiums vs. payouts for claims is not an insurance company's entire or whole income, although most try to put that proposition forth as factual and the whole truth.

The majority of their income actually comes from the investing of all those monthly/semiannually/annual premiums in stocks, bonds, funds, etc. Insurance companies are, as a group, one of the largest institutional investors on the market.

Yes, but where does that investment money come from? The premiums they charge. While investments are a big portion of our revenue yearly, if the market does bad its harder to earn money from that premium. The premiums are a more stable form of income then investments ever will be. Yes we invest premium income so hopefully when/if you submit a claim the money earned from investments will be more then you paid in premiums, however that usually is not the case (on newer policies, meaning less then 1 year old) and we LOSE money on those. We lose money on a policy for a while before we even break even on each policy. Your $1000 bi-annual premium doesn't go very far when you look at all the overhead and other expenses (agent costs, equipment, underwriting, claims, etc). So we can only hope that investment money will cut the amount of time we are losing money down to only a few months.

Insurance is very unique and very volatile. Look at what Katrina did to a lot of the smaller companies, it made them go into bankruptcy. A bad market earning a low return, in combination with a natural disaster and we can be sitting in a VERY bad spot VERY quickly.

Not to mention that if its a broker (like one from our independent agency) that sells someone the insurance our agency gets about 25% of the premium, so whatever you think you paid the big bad insurance company is actually reduced up to 25%, sometimes it's more, sometimes it's less.