Insurance is a necessary evil. You may pay into it your entire life, and only use it a time or two. That’s a real tough pill to swallow, but it is what it is. If you are going to own a car or home, you will have to fork over some of your hard earned money to pay for insurance. And don’t forget that insurance companies are all about data. These firms calculate risk and go to great lengths to get a lot of information about the people they insure. Insurance companies base all of the coverage that they offer as a result of the risk factors that they model for their clients. It’s how they do their jobs and stay in business. But a lot of people and even some legislators are a bit upset about the fact that these companies often use consumers’ credit scores to decide the rates that they must pay.
Relying on the use of someone’s credit history to determine insurance premiums is called credit-based insurance scoring. This scoring can have an impact on all types of insurance ranging from automobile coverage to home owners insurance. The concern that opponents of this practice have is whether or not this method of insuring leads to a negative impact on people with lower credit scores and/or minorities. Back in 2007, the FTC came to the conclusion that this practice for the auto insurance industry “likely leads to African-Americans and Hispanics paying relatively more for automobile insurance than non-Hispanic whites and Asians.” This was thought to be because the first group tends to have lower credit scores – on average – than the other groups. It should be noted, though, that this type of credit scoring has been used to accurately predict risk for members of all groups in the same manner. With auto insurance, the FTC also discovered that credit scores could be used to figure out how likely it would be for a person to actually file a claim.
Whether we like it or not, this practice takes place and has been going on for some time. Some states, however, have taken action to help protect customers from being impacted by credit-based insurance scores. California, for example, does not let insurers use credit scores when they create prices for automobile insurance policies. Massachusetts was another state that recently banned the use of credit-based insurance scoring. This bill became a law when the former Governor Deval Patrick signed it back in 2011.
What if you don’t live in a state that offers you any protection from this practice? The best thing you can do is to work on improving your credit score. However, that can take some time. While you are doing that, you need to compare the coverage and premiums offered by different insurance companies. You can also choose to pay a higher deductible to help make monthly premium costs a little lower. To do this, you’ll have to work with your current insurance agent to make changes to your coverage contract. If your current insurer is unwilling to make this change for you, there are lots of other insurance providers out there who are always looking for new clients. You can switch over to a new insurance company that will allow you to choose a higher deductible in lieu of monthly insurance payments that you cannot afford. Continue taking steps to improve your credit score, and you may be able to significantly lower your insurance payments in the very near future. This is just another way that a higher credit score proves to be an asset for American consumers in most states.