Insurance Rates and Credit Scores - Marketplace Investigation

[eastcoast_gsx]

http://www.cbc.ca/marketplace/2010/r...rage/main.html

Good on NB for cracking down on this BS practice.

[Platinum Cycle]

Credit scoring is a very interesting concept and not one particularly welcome, then again ask 16 year olds how they feel when they apply for insurance.

I'm not sure I believe in the credit scoring tool, I understand how it may be effective at predicting risk, but not sure the data is well understood or significant or that good at predicting losses.

What this article didn't mention though was the massive discounts you can receive for a good credit score.

I'm happy to report that based on my credit score I got a 45% decrease on my homeowners insurance premium. On that basis I guess I'm a supporter.

[VifferFun]

Thanks Eastcoast_GSX for posting the link.

I saw the Marketplace clip a few days ago. It is so biased that it hardly qualifies as journalism. I will start by mentioning that I am not an advocate for the use of Credit Score in rating; however, since it is allowed to be used for Homeowners insurance in Canada, then companies must use it to avoid being antiselected. I would have no objections if the Ontario Government said that the insurance industry could no longer use Credit Score in rating -- as long as no insurance company is using it, then none are being antiselected. There is no doubt that Credit Score is a very strong statistical predictor of future claims, but I would not be sad if it was banned for use in rating Property insurance.

There are certainly negative aspects to using Credit Score when rating Property insurance, but I wish that the article had focused on these points rather than presenting misinformation to further confuse people.

Here are but a few of the errors and likely-intentional oversights:

1.) Credit score does not plummet when you lose your job, get a divorce, or hit some other obstacle in life.

2.) Credit score does not depend on income. It reflects your financial responsibility, not how much money you make.

3.) Credit score does NOT mean you are more likely to burn your home down, but rather that you are more likely to file a claim. There is a big difference.

4.) The AIG bailout was for their mortgages/investments, not their insurance. The American mortgage bailouts have absolutely nothing to do with Canada or its Property/Casualty Insurance Industry.

5.) The Co-operators was very clear about their intent to use Credit Score for Homeowners insurance including pamplets, information on their website, inserts in their renewal notices, etc. It is true that some other companies were less forthright about their use of Credit Score.

6.) More discounts are given due to Credit Score than surcharges. It's not a money grab, and essentially results in less premium income for the insurer. The advantage to the insurer is that they are targeting business that is less likely to file claims.

7.) They tried to make it seem as if the rate increases for these policyholders were due to Credit Score alone. Homeowners claims experience in Ontario has been quite poor, and the Homeowners product has been significantly underpriced by insurers in the past. Most of the rate increases for the people shown on the program were likely due to a deteriorating claims experience, not their credit score. In fact, their credit scores might have helped decrease their rates.

8.) Insurers use MANY more variables when rating your homeowner's policy . . . Credit Score is just one small piece of the puzzle.

9.) The journalist failed to report on the people who were delighted with their premium decreases last year because, well, that would just be boring TV.

[i3kc]

I want to point out that not all insurance companies use a Credit Score. Many use a Credit Based Insurance Score which is a bit different than a true Credit Score.

http://www.insurancescore.com/creditvinsurance.aspx

[Platinum Cycle]

I want to point out that not all insurance companies use a Credit Score. Many use a Credit Based Insurance Score which is a bit different than a true Credit Score.

http://www.insurancescore.com/creditvinsurance.aspx

Absolutely correct, the Credit Score is one "component" of the insurance score. Other physical and moral risk characteristics go into the insurance score. But, ask your insurer what percentage of the insurance score is derived from the credit score and they will probably tell you it's top secret and they can't share that with you.

If you have a bad credit score and I think your chances of having a good insurance score are about the same as the chance that the Leafs will win the Cup this year, or this decade.

[i3kc]

An Insurance score is derived from components of a Credit score.

The most importing thing that you want to know when dealing with an insurance company is if they run an Insurance Score or a Credit Score.

An inquiry into your Credit Score is recorded as a “Hard Hit” inquiry and will affect (lower) your credit score. This can make a difference when applying for credit.

An inquiry into your Insurance Score is recorded as a “Soft Hit” and this has no affect on your Credit Score.

[VifferFun]

An inquiry into your Credit Score is recorded as a “Hard Hit” inquiry and will affect (lower) your credit score. This can make a difference when applying for credit.

An inquiry into your Insurance Score is recorded as a “Soft Hit” and this has no affect on your Credit Score.

I don't think this is true. Insurance companies purchase insurance scores in bulk, and I think it is always a soft hit.

Correct me if I'm wrong, but I believe "Insurance Score" is just a euphemism for "Credit Score". As Platinum_Cycle pointed out, an "Insurance Score" is heavily weighted by the credit portion.

As an insurer, we already develop your "Insurance Score" by the various characteristics that we rate on, such as age of home, age of roof, water-backup preventative measures, type of wiring, etc. etc. etc. Your credit score would just add one more variable to the algorithm.

[eastcoast_gsx]

Hello world... meet crock of s***!

Insurance Scoring that is

[eastcoast_gsx]

If credit bureau information is so accurate... why do I have to pay to get a quarterly report to monitor their data myself?? Sounds like a damn good business to be in doesn't it....

http://en.wikipedia.org/wiki/Fair_Cr..._credit_report

[AdRath]

I can't stand credit score rating as there are so many things that can effect your credit score that you have no control over. You can have bogus hits against your credit score by the time it gets sorted out the damage has been done. I had a budy that had his credit ruined due to a bank error with student lones and by the time he realized it they had sold his debt to a collection and said too bad.

If anything having a poor credit score means they can probably double bill you a month and you won't notice as you don't monitor your accounts as well as others with high credit scores.

There is enough ways a credit score can screw you over on actual things related to credit. Insurance shouldn't be one as it has nothing to do with credit.

[VifferFun]

The Co-operators has wrote an open letter to Marketplace and posted it on their website:

http://www.cooperators.ca/static/pdf...arketplace.pdf

[i3kc]

I don't think this is true. Insurance companies purchase insurance scores in bulk, and I think it is always a soft hit.

Correct me if I'm wrong, but I believe "Insurance Score" is just a euphemism for "Credit Score". As Platinum_Cycle pointed out, an "Insurance Score" is heavily weighted by the credit portion.

As an insurer, we already develop your "Insurance Score" by the various characteristics that we rate on, such as age of home, age of roof, water-backup preventative measures, type of wiring, etc. etc. etc. Your credit score would just add one more variable to the algorithm.

Insurance Score and Credit Score are two different products.

http://www.insurancescore.com/creditvinsurance.aspx

Mainly lending institutions use the Credit Score (Credit Check), but some insurance companies also use the Credit Score. A Credit Score directly examines your credit worthiness (ability to repay a loan). As an Insurance Score predicts the probability a person would make a claim. Two different products sold by the credit agencies.

This is from the Transunion web site:
Recent inquiries - When a lender or business checks your credit, it causes a hard inquiry to your credit file. Apply for new credit in moderation.

Every insurance company uses the Insurance Score of Credit Score in rate determination differently. In most cases it leads to a surcharge or discount applied to the base premiums.

[i3kc]

The Co-operators has wrote an open letter to Marketplace and posted it on their website:

http://www.cooperators.ca/static/pdf...arketplace.pdf

Thanks for the link.

It's unfortunate that most people will have already developed a negative impression in regards to the use of the credit / insurance score in rate determination. Most people who viewed the program will have no idea that the information presented is incorrect.

I would not bet on CBC Marketplace responding to that letter as it wouldn’t be “good television”. Or would it? CBC admitting to poor journalism… Doesn’t matter anyways because the damage to the Co-Operators and the industry’s reputation has already been done.

[VifferFun]

Thanks for the link.

It's unfortunate that most people will have already developed a negative impression in regards to the use of the credit / insurance score in rate determination. Most people who viewed the program will have no idea that the information presented is incorrect.

This is pretty much true of all media, but especially investigative "journalism" where rallying up the torches and pitchforks against a misunderstood industry is very easy, especially when you prevent a biased view full of misinformation. I think that The Co-operators should sue the CBC for slander, since I am certain that they intentionally "overlooked" key details and presented misinformation knowingly -- either that, or they are even more stupid than I think.

I would not bet on CBC Marketplace responding to that letter as it wouldn’t be “good television”. Or would it? CBC admitting to poor journalism… Doesn’t matter anyways because the damage to the Co-Operators and the industry’s reputation has already been done.

It's funny that they should pick on The Co-operators -- not only are they one of the last companies to implement Credit Score, but they are also one of the most transparent insurers about their use of Credit Score.

[VifferFun]

Insurance Score and Credit Score are two different products.

http://www.insurancescore.com/creditvinsurance.aspx

Mainly lending institutions use the Credit Score (Credit Check), but some insurance companies also use the Credit Score. A Credit Score directly examines your credit worthiness (ability to repay a loan). As an Insurance Score predicts the probability a person would make a claim. Two different products sold by the credit agencies.

This is from the Transunion web site:
Recent inquiries - When a lender or business checks your credit, it causes a hard inquiry to your credit file. Apply for new credit in moderation.

Every insurance company uses the Insurance Score of Credit Score in rate determination differently. In most cases it leads to a surcharge or discount applied to the base premiums.

I have always been told that our use of Credit Score is a "soft hit" to the insured's credit history, and has no impact on their credit score whatsoever. I will look into it.

[eastcoast_gsx]

WOW... Talk about the rally... I work with the credit industry every day. I know how it works, but thanks for the info

[i3kc]

I have always been told that our use of Credit Score is a "soft hit" to the insured's credit history, and has no impact on their credit score whatsoever. I will look into it.

I think it comes down to what product your company is actually ordering. Maybe they are ordering an "Insurance Score" but calling it a “Credit Score”.

I called Transunion yesterday to speak to a rep. They informed me ordering a Credit Score is the same as ordering a Credit Check (Report). Basically a credit report lists your score, and details about your credit history. When an insurance company order’s this report, it is treated no differently then when a bank orders it.

With that said, from my past experience in dealing with these credit companies, I have learned that often the right hand doesn’t know what the left hand is doing. There were situations where issues had to be escalated to VPs in order to be properly addressed.