Credit Scoring, outside its traditional use for assessing risk in mortgages and other “extended payment” transactions,has become a blight.
For insurance purposes, having an excellent score for loan repayment doesn’t necessarily translate into excellent premiums. Agents see it over and over again; a top credit scorer doesn’t receive the lowest insurance rates.
In the secret, arcane world of insurance credit scoring, consumers will never learn how to improve their scores. And if they did find the secret, rearranging their financial life around that, they very well could be reducing their “mortgage” credit score.
For a utility to use a credit score to determine the required deposit – is one thing. For them to charge higher rates – is another.
True, customers often do not understand how credit plays into insurance. It is more than just being able to pay their premiums.
Logically, if a customer has a high risk of not being able to pay back a loan, there is also a higher risk that the customer will not have the ability to pay for necessary maintainence to the property or to take the necessary steps to mitigate loss. As a result, the insurance policy becomes a maintainence crutch instead of a tool to alleivate direct, sudden, and accidental major financial loss as it was intended. A staple of rating insurance is to charge premium commensurate with the the risk of loss; if someone bears a higher risk of loss, should they not share a higher percentage of the premium to help pay for losses?
You’re missing the point Lee, if all companies were to apply the information in a uniform manner, it would be a little easier to understand. But because each company uses their own model the information is not uniform in it’s affect on premiums. The only company I know of that can even explain what they look for and how they use it is Progressive. Most company underwriters don’t even know what is used or how it will be used to determine premium.
I agree that most insurance professionals do not know how insurance scoring is developed. Once more, each company has its own formula for developing this score so to try to assist the client would be impossible especially if the client changes companies for lower premium. It would be difficult and impossible to help the client improve their credit score. I also feel that the most responsible and clean/no losses clients of ours here in our office are the ones that pay the most in premium which one would believe those with the greatest risk would pay the higher rate. Credit scoring is discriminatory in every sense of the word. Our system of charging for the extent of risk should be our first priority but in today’s world it is not. It is far too subjective. I look forward to the day when all statistics prove that credit scoring does not determine less frequency of loss and the submission of claims. I truly feel this day will come soon.
BC, I agree that companies need to do a better job of stepping up to the plate and explaining the process. However, my point is that in the meantime, us agents have a responsibility to explain why credit affects insureds. At that point, the insured then can make a decision to either manage their finances more prudently, or live with the fact that his/her financial decisions will have consequences. In addition, I feel that people need to take a little responsibility for themselves. Our litigious society has created the impression that our problems are everyone else’s fault; that because a person does not manage his/her finances prudently that everyone else should have to subsidize and pay for their choices. The bottom line is that we have a long way to go in smoothing out the wrinkles of using credit, but I do feel there are steps that can be taken until these wrinkles are ironed out to help our customers.
I BELIEVE THE CURRENT SYSTEM OF CREDIT SCORING IS UNFAIR AND WRONG. NOWADAYS IF YOU HAVE A DISPUTE WITH A BILL, THEY AUTOMATICALLY THREATEN TO EFFECT YOUR CREDIT SCORE. IT IS LIKE BLACKMAIL. IN ADDITION, INSURANCE COMPANIES SHOULD NOT
HAVE THE RIGHT TO MAKE UNDERWRITING DECISIONS BASED ON A CREDIT SCORE. THEY ALREADY HAVE ENOUGH UNDERWRITING MECHANISMS TO ACCEPT/DENY A RISK.
THE CREDIT SCORE IS AN INVASION OF A PERSON’S PRIVACY. SOME PEOPLE FALL INTO
FINANCIAL DEFAULTS BASED ON HEALTH, LOSS OF JOB, DIVORCE ETC. THAT DOES NOT MEAN
THEY ARE MORE INCLINED TO FILE A CLAIM.
WHY NOT USE ADDICTION STANDARDS NEXT?
CHECK OUT A PERSON’S PERSONAL HABITS. OVERSPENDING FALLS INTO THIS CORE.
Lee, I think you are going to be in the minority here buddy. I have millionaire clients with a credit score in the toilet. Why? Lots of reasons. They pay cash, they don’t finance. They pay from a trust which would not reflect on their social because it would have a tax ID. Their children have similar names. The ex has ruined their credit. I could go on and on. Plus, try to explain to someone how they can be approved to purchase a $500,000 home, but they cannot be approved to buy Insurance for it. Bottom line is it DOES NOT WORK. Until they find a better way, they should scrap it. The system wasn’t broke, they shouldn’t have fixed it! By the way, you know how they say it won’t affect the client when he applies for a loan because it is inquiry only? Not true says the Mortgage company next door. They consider it a “frequency” issue which would affect a “borderline” risk.
don’t forget to add in the headache of the increasing number of identity thefts and frauds. no matter what steps you take, once you are a victim of this, it is extremely difficult to “fix” your credit. in addition, credit scoring is discriminatory.
Credit Scoring, outside its traditional use for assessing risk in mortgages and other “extended payment” transactions,has become a blight.
For insurance purposes, having an excellent score for loan repayment doesn’t necessarily translate into excellent premiums. Agents see it over and over again; a top credit scorer doesn’t receive the lowest insurance rates.
In the secret, arcane world of insurance credit scoring, consumers will never learn how to improve their scores. And if they did find the secret, rearranging their financial life around that, they very well could be reducing their “mortgage” credit score.
For a utility to use a credit score to determine the required deposit – is one thing. For them to charge higher rates – is another.
How can consumers understand credit scoring when a great percentage of insurance professionals do not either?
True, customers often do not understand how credit plays into insurance. It is more than just being able to pay their premiums.
Logically, if a customer has a high risk of not being able to pay back a loan, there is also a higher risk that the customer will not have the ability to pay for necessary maintainence to the property or to take the necessary steps to mitigate loss. As a result, the insurance policy becomes a maintainence crutch instead of a tool to alleivate direct, sudden, and accidental major financial loss as it was intended. A staple of rating insurance is to charge premium commensurate with the the risk of loss; if someone bears a higher risk of loss, should they not share a higher percentage of the premium to help pay for losses?
You’re missing the point Lee, if all companies were to apply the information in a uniform manner, it would be a little easier to understand. But because each company uses their own model the information is not uniform in it’s affect on premiums. The only company I know of that can even explain what they look for and how they use it is Progressive. Most company underwriters don’t even know what is used or how it will be used to determine premium.
I agree that most insurance professionals do not know how insurance scoring is developed. Once more, each company has its own formula for developing this score so to try to assist the client would be impossible especially if the client changes companies for lower premium. It would be difficult and impossible to help the client improve their credit score. I also feel that the most responsible and clean/no losses clients of ours here in our office are the ones that pay the most in premium which one would believe those with the greatest risk would pay the higher rate. Credit scoring is discriminatory in every sense of the word. Our system of charging for the extent of risk should be our first priority but in today’s world it is not. It is far too subjective. I look forward to the day when all statistics prove that credit scoring does not determine less frequency of loss and the submission of claims. I truly feel this day will come soon.
BC, I agree that companies need to do a better job of stepping up to the plate and explaining the process. However, my point is that in the meantime, us agents have a responsibility to explain why credit affects insureds. At that point, the insured then can make a decision to either manage their finances more prudently, or live with the fact that his/her financial decisions will have consequences. In addition, I feel that people need to take a little responsibility for themselves. Our litigious society has created the impression that our problems are everyone else’s fault; that because a person does not manage his/her finances prudently that everyone else should have to subsidize and pay for their choices. The bottom line is that we have a long way to go in smoothing out the wrinkles of using credit, but I do feel there are steps that can be taken until these wrinkles are ironed out to help our customers.
I BELIEVE THE CURRENT SYSTEM OF CREDIT SCORING IS UNFAIR AND WRONG. NOWADAYS IF YOU HAVE A DISPUTE WITH A BILL, THEY AUTOMATICALLY THREATEN TO EFFECT YOUR CREDIT SCORE. IT IS LIKE BLACKMAIL. IN ADDITION, INSURANCE COMPANIES SHOULD NOT
HAVE THE RIGHT TO MAKE UNDERWRITING DECISIONS BASED ON A CREDIT SCORE. THEY ALREADY HAVE ENOUGH UNDERWRITING MECHANISMS TO ACCEPT/DENY A RISK.
THE CREDIT SCORE IS AN INVASION OF A PERSON’S PRIVACY. SOME PEOPLE FALL INTO
FINANCIAL DEFAULTS BASED ON HEALTH, LOSS OF JOB, DIVORCE ETC. THAT DOES NOT MEAN
THEY ARE MORE INCLINED TO FILE A CLAIM.
WHY NOT USE ADDICTION STANDARDS NEXT?
CHECK OUT A PERSON’S PERSONAL HABITS. OVERSPENDING FALLS INTO THIS CORE.
ENOUGH IS ENOUGH.
Lee, I think you are going to be in the minority here buddy. I have millionaire clients with a credit score in the toilet. Why? Lots of reasons. They pay cash, they don’t finance. They pay from a trust which would not reflect on their social because it would have a tax ID. Their children have similar names. The ex has ruined their credit. I could go on and on. Plus, try to explain to someone how they can be approved to purchase a $500,000 home, but they cannot be approved to buy Insurance for it. Bottom line is it DOES NOT WORK. Until they find a better way, they should scrap it. The system wasn’t broke, they shouldn’t have fixed it! By the way, you know how they say it won’t affect the client when he applies for a loan because it is inquiry only? Not true says the Mortgage company next door. They consider it a “frequency” issue which would affect a “borderline” risk.
Righton Sue, you are in the trenches and know the agent’s problems with Credit Scoring. Lee has to be a company person or one brain washed agent.
don’t forget to add in the headache of the increasing number of identity thefts and frauds. no matter what steps you take, once you are a victim of this, it is extremely difficult to “fix” your credit. in addition, credit scoring is discriminatory.