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Complaint 10 of 15 in "Billing or Pricing Issues"

Insurance Carrier:
State: Nevada

Consumer Complaint:

Surcharging auto premiums regarding credit scores has to be stopped. Credit score surcharges without qualification are discriminatory at best. Who, what and when was this regulation adopted and what action will it take to have it rescinded. Where can I research for a more knowledgeable understanding of this law and/or insurance regulation? Thank you for your response and the reasons insurance companies use credit scores for premium rating. We all know including the insurance underwriters that the reasons are as bogus as the redlining was. I will need to know the legislation and regulation numbers and any articles written along with dates passed and by whom etc. Using credit scores to determine premiums smacks of the same misleading type of underwriting and must be dealt with the same way.


Insurance Expert Answer:

Sorry but you'll have to do your own research. Unfortunately it seems that industry data, from several companies, has shown there is a viable correlation between credit scores and loss experience. The lower the scores, the higher the loss ratios. There are several reasons companies and others use to try to explain why this is so (and I am only reporting - not necessarily agreeing): 1. People who are careful to pay their bills on time (a critical factor when it comes to credit score) also tend to be careful with their car and home maintenance and their driving habits. 2. People who are responsible when it comes to seeking credit (also a key factor in credit score) are responsible in other aspects of their lives. 3. Loss experience is aggravated by minor claims, as well as by false and exaggerated claims, and people who have high credit scores have less tendency to file claims (such as for a minor loss) or to inflate claims. 4. People with good credit scores tend to live in more affluent neighborhoods, where there is less population density, better schools, better policing and fire protection, and lower vandalism and crime -- which are major factors in loss experience.

Is everyone with a poor credit score a bad risk? NO. Is everyone with a great credit score a good risk? NO. Are there abuses in use of credit scores? YES. Are some carriers relying on credit scores to do lawfully what they used to do by "redlining" (not writing coverage in "bad" areas) now that redlining is illegal? Probably.

Check out the website of the NAIC (National Association of Insurance Commissioners) for information about use of credit scores. There was some Congressional testimony on the topic some years back, and several states have held hearings on the topic and use of credit scores may have been outlawed in some states. Also check out the Fair Issac Website - their FICO scores are the basis for most credit ratings.