Credit Card Spree Caused Auto Insurance Increase

[Anonymous]

Ive been pretty lucky so far with allstate although when my old agent retired the new one raised the rates instantly on the next renewal. Im not sure who has control over the rates more (the agent or the firm) but im hoping the rates dont steadily rise. If they do Ill shop around

[Ghoshida]

The Wikipedia article on this topic provides a good read. 

http://en.m.wikipedia.org/wiki/Insurance_score

However, our forum owner, FICO is a proponent of such scoring; so are the insurance lobby and the data  gatherers. 

Correlation doesn't equate causation; and the same logic should have also been extended to credit scoring. Carrying high balances has a correlation with default. However, I could carry a balance either because I can't pay it or because I want to take advantage of great 0% APR that a company extended to me because of my fantastic credit. Your score won't consider the causes.

A read into the cases made by consumer organizations in the wiki page shows how they argue that credit scoring is indeed unfair, and whether or not FICO or other scorers consider race, ethnicity etc, credit scoring is a proxy for redlining; minorities end up on the lower end of the scale.

Now, when it comes to getting a credit card, I could understand that the underwriters won't give up on their lovely risk models. However, when your auto insurance is impacted by whether or not you got yourself a gas company's credit card, it is indeed unfair. It reeks of an unholy nexus. 

[Ghoshida]

An old but interesting read : http://www.cej-online.org/cej%20report%20ins%20cr%20scoring%200501.pdf

[vanillabean]

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@sillykitty1 wrote:

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@Anonymous wrote:

This is one case where Credit Karma can be useful as a guide, as it shows Auto and Home insurance scores.   These can be VERY different from any of the standard credit scores, at one stage I was 990 (max) on Vantage and "Poor" on auto insurance.    Fortunately, my state doesn't allow credit-based insurance decisions.

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Credit based insurance decisions are not allowed in Massachusetts, Hawaii, or California.

I'm grateful I'm also in one of those states.

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Me too. Of course it's no coincidence that some states allow it and some don't.

[Anonymous]

Anyone know if State Farm pulls this crap?

[xerostatus]

It's always a good idea to shop around for car insurance. It's also good to re-negotiate your premium each time you're up for renewal, even if there was no increase. 

But on the topic of using credit score/history to guage risk for car insurance, you have to remember/acknowledge that any "insurance" is nothing more than a financial product, like a loan or mortgage. That's why there is sometimes overlap between banking and insurance (i.e. USAA, State Farm, etc). The insurance company is ultimately making a financial/"lending" decision when it comes to assessing your (their) risk. So to me, it makes perfect sense that insurance company would utilize your credit history to make actuarial decisions.

Put another way, the insurance companies actuarial analysis isn't based on your perceived risk of "getting into an accident" (i.e. driving history, etc.); rather, they are trying to determine your "risk of loss/claim" as a whole (of which one part would be the consideration of previously mentioned "driving history"). A subtle, but important distinction. The former is related to a very small subsect of any given person's perceived risk on a very specific activity; the latter being a more broader category of risk, and probably much more complicated in its calculation/determination.

[Anonymous]

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@fittiger wrote:

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@Anonymous wrote:

If you don't mind me asking, which insurer did you end up with who didn't have a problem with your new credit? I think my policy renews every 6 months and I've been thinking about calling prior to the next interval to see if I can get anything decreased, but I've added a lot of new credit since I got my policy so I'm curious.

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I ended up going with Geico.  They also pulled my credit but didn't have an issue with it.  So I guess they use a different algorithm for risk.  

Ended up with better liability for just $20 more a year than I had been paying.

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Thanks, that's good to know! I'm with Geico already, so I'm gonna try reviewing my policy next time it comes up for renewal. I have terrible rates because of my age, but the next renewal will mark 1 year of history with them, plus my credit has improved a lot since then, so hopefully I can get it down a little.

[Anonymous]

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@Anonymous wrote:

Ive been pretty lucky so far with allstate although when my old agent retired the new one raised the rates instantly on the next renewal. Im not sure who has control over the rates more (the agent or the firm) but im hoping the rates dont steadily rise. If they do Ill shop around

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Please let us know.  I've had Geico forever and they neve raise my rates..  Lower them slightly.  Allstate gave me a call & said they could do better.  Said 600.00 per yr better.  I have to have insurance renewal by June 5th.  I was going to go with Allstate but I sure don't want to switch over only to find out that they're going to keep raising the price & I will eventually be back up to where Geico is now.  I would rather stay with them.  

My insurance scores took a big dive when the CRA's started reporting all of my 10 new cc's.  But it bounced back.  Actually went a bit higher.  

[Callandra]

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@Anonymous-own-fico wrote:

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@sillykitty1 wrote:

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@Anonymous wrote:

This is one case where Credit Karma can be useful as a guide, as it shows Auto and Home insurance scores.   These can be VERY different from any of the standard credit scores, at one stage I was 990 (max) on Vantage and "Poor" on auto insurance.    Fortunately, my state doesn't allow credit-based insurance decisions.

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Credit based insurance decisions are not allowed in Massachusetts, Hawaii, or California.

I'm grateful I'm also in one of those states.

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Me too. Of course it's no coincidence that some states allow it and some don't.

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Not surprised at all that it's not allowed in California. Between that the labor laws there, Cali is a resident friendly state. 

(yes, I hate working in Florida)

[Ghoshida]

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@xerostatus wrote:

It's always a good idea to shop around for car insurance. It's also good to re-negotiate your premium each time you're up for renewal, even if there was no increase. 

But on the topic of using credit score/history to guage risk for car insurance, you have to remember/acknowledge that any "insurance" is nothing more than a financial product, like a loan or mortgage. That's why there is sometimes overlap between banking and insurance (i.e. USAA, State Farm, etc). The insurance company is ultimately making a financial/"lending" decision when it comes to assessing your (their) risk. So to me, it makes perfect sense that insurance company would utilize your credit history to make actuarial decisions.

Put another way, the insurance companies actuarial analysis isn't based on your perceived risk of "getting into an accident" (i.e. driving history, etc.); rather, they are trying to determine your "risk of loss/claim" as a whole (of which one part would be the consideration of previously mentioned "driving history"). A subtle, but important distinction. The former is related to a very small subsect of any given person's perceived risk on a very specific activity; the latter being a more broader category of risk, and probably much more complicated in its calculation/determination.

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I am not in complete agreement to this.

Anyway, this is the research leading up to all the hoolabaloo. http://repositories.lib.utexas.edu/bitstream/handle/2152/14798/bbr-2003-credit-and-insurance-losses....

The subtle difference argument is valid; however, it is stretching the "immoral customer" argument far too long.

The argument is about fairness of using this metric. A job loss / accident / divorce could wreck havoc on one's credit; and that's the time for the auto insurer to increase premiums, even if the driving history is perfect? The insurer is doing this with a cynical view: "Oh well, this guy has no money, he must be now totalling his car and claiming money from us. We'll show him!" which you'd call anticipated risk of filing a claim.

On the real side of the story, (a) such a view is overrated; and more often than not the financial organizations will do many gazillion times more "immoral" things than that chap whose premium was just increased; and (b) mandatory insurance rules will then either make that guy few hundred dollars poorer during distress, or worse, he'll have to give up his car that he'd otherwise need then the most.

I'd love people to not rely on their cars, and in turn, on auto insurance companies. Sadly, this cannot happen (in near future) in the US given its transportation structures for a good chunk of the population.