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2:28 PM
Alexis P. Jones, The Credit DIVA
The insurance industry can cancel your policy, even if you’ve never made a claim. This is because they use a system called Insurance Credit Scoring. This allows your insurance company to make assumptions about your reliability and honesty based on your credit score. These assumptions are based on the erroneous belief that there is a direct, statistical relationship between your financial history and the risk that you will be dishonest. The lower your insurance score, this assumption says, the more likely it is that you will file claims against the company, inflate claims or make fraudulent claims, or even commit arson. The credit score that is used to judge your fitness to receive insurance is based solely on the information in consumer credit reports, used in conjunction with motor vehicle records and other paperwork. From this information, the insurance company determines the risk of insuring you.
Because of this process, insurance customers may receive higher premiums based only on their credit score, even if they have clean driving records. The insurance company is hoping that customers with good credit will choose to settle an incident without making a claim, saving them money. It is also believed that people with low credit are more negligent, commit more fraud, and improperly care for their homes and vehicles. The insurance industry regards the credit score as a more accurate prediction of loss than the individual’s personal insurance history. This industry wants to discourage claims and avoid paying out when claims are made. Customers who might legitimately cost them money are to be avoided and gotten rid of, even using inaccurate methods to determine this. The insurance industry is creating correlations between people who make claims and low credit, then using their own numbers to back this behavior up.
If this has happened to you, the most important thing you can do is to file a complaint with your Department of Insurance. Many states have laws requiring this department to track complaints involving this kind of credit scoring. Because of this, complaining is the only way to let Insurance Commissioner know that something is wrong. You may obtain a copy of the credit report that caused your policy not to be renewed. Be sure to order it, and correct any errors that crop up, because the credit reporting agencies do make errors. Once any errors are fixed, be sure also to have the agency re-rate you. Even individuals with exemplary credit may be penalized by insurance credit rating because the agency does not calculate lending credit and insurance credit in the same way. Insurance credit rating is being used more and more as a way for the companies to save money at the expense of innocent customers. Be aware of your credit and your options if your rates go up or your policy is dropped.
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