Insurers are always determining which part of the consumer pool will be most profitable. Insurance companies are using insurance scoring (Also called credit-based underwriting, company placement indicator, insurance financial stability score) to determine your rates and financing on an auto insurance policy.
Your insurance score is based on info contained in consumer credit reports from Fair, Isaac and Co. (FICO), ChoicePoint, Equifax, Experian, and / or Trans Union. Insurers can show that the individuals charged more under credit scoring account for higher losses than others. Insurance companies can evaluate your rate when you first buy or when your auto insurance policy is up for renewal. If your insurance score is low enough, the carrier can raise your premiums, place you in a subsidiary, and even cancel your insurance altogether.
If you have filed for bankruptcy, divorced, lost a job, shopped around for a mortgage rate, consolidated debts, pay off your large debts (mortgage, auto) early
(incurring inquires and thus lowering your credit score), then you may have lowered your insurance credit score.
ChoicePoint, with the help of a Fair, Isaac and Co. scoring formula, and the Insurance Services Office (ISO) offer insurers extensive nationwide resources that contain your name, address, phone number, credit report, claims history, and motor vehicle report - and that just scratches the surface. ChoicePoint also compiles aliases, criminal records, and histories of vehicles. "If you've got a car that's been in 35 accidents, that's something the insurance company is going to want to know," says Mark Wheeler, spokesperson for ChoicePoint.
ChoicePoint, which is an offshoot of the Equifax credit-reporting company, maintains a database called CLUE (Comprehensive Loss Underwriting Exchange). The company uses the information it gathers and maintains for "casualty loss" scoring, claims history reporting, and driving-record reporting. When a consumer fills out a new auto insurance application, the potential insurer queries ChoicePoint for an insurance score. ChoicePoint caters to nearly all property and casualty insurers.
The ISO says the databases it maintains, called the All Claims databases, are strictly for detecting fraud and expediting the claims process. If the ISO sees a series of claims that looks suspicious - for example, the same name appears on all the claims with a different social security number - the company will notify the insurance company and the insurer will investigate. The ISO also has information about any of your claims that might have ended up in court.
Any of the following may lower your insurance score:
Large number of accounts opened in the last year or two
Large number of department store accounts
Large number of department store accounts with a balance of 50% or more of limit
Large number of consumer finance accounts
Large number of auto finance accounts
Large number of open retail store accounts
Large number of sales finance accounts
Large number of open automotive related accounts
Large number of credit card accounts open
Number of credit card accounts where balance is 75% or more of the limit
Small number of accounts with low credit limits
Late or delinquent payments
Loan defaults or bankruptcies
no credit information
Any of the following may increase your insurance score:
Having an oil company credit card
High average number of months all accounts on file have been open
High average number of months bank revolving accounts have been opened
Older age of accounts
Optimal number of credit card accounts open
The insurance companies have deduced that people with poor credit are also more careless with their finances, they are more likely to have an accident, file claims, inflate claims, commit fraud and commit arson. If you are more meticulous and responsible about paying your bills, you will also be careful with your driving and have lower expected losses.
Insurance companies claim that the use of these scores helps them to issue new and renewal insurance policies based on objective, accurate, and consistent information; and to streamline the process, better anticipate claims and better control risk. This enables them to offer more insurance coverage to more consumers at a fairer cost.
Opponents of insurance credit scoring claim it's modern day red lining (charging rates by geographical area) and whether you are more likely to use your insurance and files claims in an accident. Opponents also argue that companies can use insurance credit scores to non-renew coverage regardless of whether a claim has been filed or premiums have been paid on time and that credit scoring focuses on a consumer’s
economic status. Many drivers are question why tickets and points may be removed from their driving record, but their rates increase, when they were expecting the opposite. People with poor credit scores (but no accidents) can pay 4 to 5 times as much as other consumers with good credit.
This insurance credit score is then used in conjunction with motor vehicle records, loss reports, and application information to determine your insurance risk at a particular point in time. For some insurers, one consumer who differs from another consumer solely because of credit score can pay 4 to 5 times as much as the other consumer.
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