Posted On: June 6, 2007, 8:02 am CDT

Posted By: Ratemaker

The reason insurers want to be able to use credit history to rate/underwrite policies is because it works. We don't necessarily know WHY it works, but it does work. On AVERAGE and with the effects of all traditional rating variables (including Age, gender, use of the vehicle, and driving history) accounted for, insureds with a low score file more claims and larger claims than those with an average or above average score.

The credit score used by your insurer is not the same one used by the bank when you apply for a loan. It is derived from the same data, but it is weighted differently and there are some data elements that the insurer is not permitted to use (income, for example.)

I personally don't like having to use it for rating, but any company who doesn't is going to get their butt kicked in the competetive market.

The other reason insurers want to hang on to credit is that they don't want to be told what they can and cannot use for rating a policy. If we let the government get its foot in that door, it's the first step down a very slippery slope.