Increasingly, insurance companies are using credit scores to determine your premium. Do you think this is right?
I know there are readers who are concerned. Recently, a reader asked about
insurers who don't use credit scores.
Obviously, people are aware of the practice and are hoping to avoid it.
When I did my research to answer this question, I was surprised to find
that there are very few insurers left who do not consider credit scores
when underwriting insurance policies.
Personally, I have some
real concerns about using credit scores to determine insurance
eligibility. In part, I think it penalizes people who are already
struggling with financial problems, and layers even more costs on them
at a time when they can least afford it. It could make insurance too
pricey for these same people who most need the protection in case of a
disaster. For that reason alone, I'd like to see it changed.
However,
I also am concerned for another reason. Insurance companies say that
credit scores are a good predictor of claims behaviour. Lower credit
scores correspond to higher claims history and so those with lower
credit scores are higher risk. But do we really want insurance
companies to look at factors unrelated to insurance (like credit
scores) when determining how much to charge for insurance?
My recent post on
astrological signs and driving record is a case in point. What if insurers decided that there was a "trend"
in the data that suggested that your birthday actually had an impact on
your claims history? Should insurers be allowed to start using that as
part of their underwriting criteria? Obviously, most people would say
no. But what is the difference between this and using credit scores?
That's my concern.
I
have another issue that is more academic but also problematic: what if
the real issue isn't credit score at all? What if a person's credit
score is only an indicator of something else that is the real criteria
that insurers should be looking at? For instance, insurers don't just
look at my weight to determine if I'm healthy: they also look at my
height and gender and so on. Otherwise, they could decide that anyone
who is over 200 pounds is unhealthy.
While that might be true
for many, it certainly wouldn't be true overall. In fact, 200 pounds
could be a perfectly healthy weight for a man over 6 feet tall. But, if
an insurer deals more with women than men, using a criteria of 200
pounds as a higher risk factor might appear to make sense.
So,
if claims are higher for people who have lower credit scores, is it
really some other criteria which indicates the higher claims history?
I'm wondering about that too.
Monique L. Attinger
