Would you be surprised to know that most insurance companies use your credit report to come up with a score that they use for underwriting?
Most automobile and homeowner insurance companies use this “Insurance Score,” in part, to determine which rating tier you qualify for. Some companies put more weight on the score than others and there are still a few that do not use a score for underwriting at all. At one point we worked with an insurance company that pulled your credit score and, if it was above a certain number, they gave you their best rates… without even looking at your driving record!
As agent’s we do not see your actual credit report or your credit score. However, we have been told that the carriers may look at recent financial activity that may indicate possible fraud. For example, if you are maxed out on your credit, they might think you could be tempted to make a false insurance claim. Likewise, we hear that insurance companies review a policy holder’s credit report to look for sudden financial stress and they use that information to investigate any damage, theft or lost item claim as possible fraud. Does that make sense to you? Let me know what you think!
If you apply for large amounts of life insurance your credit report will probably be checked as a matter of procedure. Depending upon where you live your credit report can even be used to deny you insurance.
There are a lot of people that think this practice is troubling. Consider that credit reports may have errors and that identity theft is a huge problem. With that in mind, more and more States prohibit the use of your credit report for determining insurance rates.
This use of credit in underwriting has been going on for years and is now a part of our everyday lives as insurance agents. When the insurance companies first came up with this idea we were all upset. We no longer think twice about this concept because it has been around for so long and has become just another fact of life for us. However, I would very much like to hear any comments that you may have. Please respond to me on Twitter, Facebook or Email (firstname.lastname@example.org).