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States are taking a second look at how credit scores affect car insurance rates

Taurus22
Valued Contributor

States are taking a second look at how credit scores affect car insurance rates

For those like myself who agree that Credit Scores have absolutely nothing to do with your ability to drive safely....

 

https://www.yahoo.com/news/move-underway-cut-credit-car-083008058.html

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Message 1 of 37
36 REPLIES 36
CreditCuriosity
Moderator

Re: States are taking a second look at how credit scores affect car insurance rates


@Taurus22 wrote:

For those like myself who agree that Credit Scores have absolutely nothing to do with your ability to drive safely....

 

https://www.yahoo.com/news/move-underway-cut-credit-car-083008058.html


I work in insurance although not auto, but many friends do work in auto insurance as actuaries and the likes and credit does play role whether people like it or not.  They would have to disagree with this assessment Smiley Happy.  There is a correlation of risks although obviously not always the case it has been shown.  Many other factors obviously go into pricing risks (insured) other than credit, credit is just of one of many things considered.  

 

Edit: also to note this articles touches on alot of things that can't be spoken about on this forum as just read it after my initial response just by topic.  So please avoid discussing the obvious things in this article that shouldnt be discussed on this platform.

Message 2 of 37
sccredit
Valued Contributor

Re: States are taking a second look at how credit scores affect car insurance rates

My father hasn't had an accident, ticket, anything in probably 30+ years. He has mediocre (at best) credit because he just doesn't pay attention to bills. Makes a ton of money, it just isn't a priority and never has been. He's in CA so he isn't penalized for it but if he were in another state he'd probably get hammered. I agree - credit shouldn't play into auto insurance.

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Message 3 of 37
Taurus22
Valued Contributor

Re: States are taking a second look at how credit scores affect car insurance rates

@CreditCuriosity   Obviously, that wasn't my intent for posting this article. There are some touchy points there, but I was focusing more on the credit factors involved with the auto insurance credit scoring system.

 

Although many may argue that there are "studies" to subjectively argue that good credit scores also = good driving practices, I vehemently disagree. (As the example in the article highlighted) Just because someone isn't credit-savvy or maybe has never pursued credit (I didn't pursue credit until I was 39 years old) should be penalized for having a pristine driving record and be charged outrageous insurance rates. While Richey Rich has a family who added him as an AU from the age of 12 and helped him build his scores to 800+ by the time he was 18yrs old, has lost his driver's license twice already since he got his permit, but still gets top tier insurance rates on the brand new Corvette Z1 his daddy bought him.

 

I mean, what if it were reversed?  What if your FICO scores were determined, in part, by your driving record? Sounds ridiculous doesn't it?  Has nothing to do with how you manage your credit cards and mortgage payments does it?

 

And for those who don't know, the auto insurance credit scoring system is somewhat different than the FICO scores we discuss here. They are similar and loosely based on FICO scores, but very much different. I would invite anyone who isn't familiar to do some "Googling"....

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KatSoDak
Frequent Contributor

Re: States are taking a second look at how credit scores affect car insurance rates

The alternatives proposed didn't seem to be appealing to the author however. One suggestion was to use a monitoring system that would judge your driving behavior and the other was based on your driving/accident history. Also, even though it's sounds absurd that your credit worthiness can predict your likelihood to pay policy premiums on time or file a claim, apparently the FTC decided they really can. 

 

https://www.ftc.gov/reports/credit-based-insurance-scores-impacts-consumers-automobile-insurance-rep...

That study from 2007 failed to come up with a better plan.

 

I can't tell if the state's that banned the practice implemented a different way to determine rates. 

 

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Message 5 of 37
CreditCuriosity
Moderator

Re: States are taking a second look at how credit scores affect car insurance rates

I respect your opinion and others that credit shouldn't play a role.  Just keep in mind if credit is removed the cost will get passed on one way or another as it still cost x amount of money to be profitable as a company.  1 bad risk can take the profit away from 1000 good risks and make an insurance company leave said market area.  Company I work for are in the process of leaving certain markets due to we simply cannot make money due to many reasons in said market.  Less competition usually is worse ultimately for the consumer.

Message 6 of 37
coldfusion
Community Leader
Super Contributor

Re: States are taking a second look at how credit scores affect car insurance rates


@CreditCuriosity wrote:

I respect your opinion and others that credit shouldn't play a role.  Just keep in mind if credit is removed the cost will get passed on one way or another as it still cost x amount of money to be profitable as a company.  1 bad risk can take the profit away from 1000 good risks and make an insurance company leave said market area.  Company I work for are in the process of leaving certain markets due to we simply cannot make money due to many reasons in said market.  Less competition usually is worse ultimately for the consumer.


I don't want to get too close to the red line here and there were multiple factors in play, but this is what happened in Massachusetts with many carriers pulling up stakes and no longer offering auto policies.  There have been some changes made and a few carriers have re-entered the market but for a while there weren't very many options.



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Message 7 of 37
barca
Regular Contributor

Re: States are taking a second look at how credit scores affect car insurance rates

I am going to play the devil's advocate here....(no offence to anyone)

 

if you plot credit scores vs number of points on your license or number of accidents.

if there is inverse proportionality,  then the insurance company might be justified.

 

Not suprising that older peple have on average  higher credit scores and they drive more carefully (lol)

 

until we have this info, I think we can not just bad mouth insurance companies.

 

I agree that the conept itself looks annoying and unfair to consumers and should be strictly based on driving records

Message 8 of 37
CreditCuriosity
Moderator

Re: States are taking a second look at how credit scores affect car insurance rates


@coldfusion wrote:

@CreditCuriosity wrote:

I respect your opinion and others that credit shouldn't play a role.  Just keep in mind if credit is removed the cost will get passed on one way or another as it still cost x amount of money to be profitable as a company.  1 bad risk can take the profit away from 1000 good risks and make an insurance company leave said market area.  Company I work for are in the process of leaving certain markets due to we simply cannot make money due to many reasons in said market.  Less competition usually is worse ultimately for the consumer.


I don't want to get too close to the red line here and there were multiple factors in play, but this is what happened in Massachusetts with many carriers pulling up stakes and no longer offering auto policies.  There have been some changes made and a few carriers have re-entered the market but for a while there weren't very many options.


A example state we are looking at leaving is NY as DOI and other regulations make it impossible to write business in certain states at a profit.  Also when CV-19 hit we had to finance the insured for one year without interest and could not cancel them without any payment incoming, yet they could have a claim hit them within said year.  Is this fair to a company?  Insurance companies run despite what people think on a very thin profit line if pricing and UW isn't correct many insurance companies do go out of business or as mentioned exit said market and then it hurts the consumers.   As mentioned I speak from a different type of insurance, not auto insurance, so some things are the same and some things are different.  Just trying to give a perspective on too much regulations and companies will pack up and leave as we count on information/data whether it is credit (not in my industry) or other factors that help us determine if profitable or we prefer simply not to do business in said market.

Message 9 of 37
Rottweilerlvr
New Contributor

Re: States are taking a second look at how credit scores affect car insurance rates


@coldfusion wrote:

@CreditCuriosity wrote:

I respect your opinion and others that credit shouldn't play a role.  Just keep in mind if credit is removed the cost will get passed on one way or another as it still cost x amount of money to be profitable as a company.  1 bad risk can take the profit away from 1000 good risks and make an insurance company leave said market area.  Company I work for are in the process of leaving certain markets due to we simply cannot make money due to many reasons in said market.  Less competition usually is worse ultimately for the consumer.


I don't want to get too close to the red line here and there were multiple factors in play, but this is what happened in Massachusetts with many carriers pulling up stakes and no longer offering auto policies.  There have been some changes made and a few carriers have re-entered the market but for a while there weren't very many options.


I don't blame them. I feared for my life driving through Boston.. 

Message 10 of 37
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