Insurance premium plus low FICO score equal greater risk (i.e., rates?)

[Anonymous]

I just received my homeowners insurance renewal and as I read through it I noticed a paragraph: "Consumer reports may be used to determine the price you are charged.  We may also obtain and use a credit-based insurance score from information contained in these reports.  We may use a third party in conection with the development of your insurance score."  Maybe folks with low credit scores are more likely to have their houses catch fire?  Or have their roofs blown away in a storm?  In the past at least one major insurance company jacked up rates on otherwise safe drivers simply because they had low credit scores while at the same time the largest electric company in my state charged more per kw hour to customers with subprime credit (on top of security deposits, late payment fees, disconnect and reconnect fees, and everything else they could think of to keep a struggling snook down.)

But that's life in a edited state where the insurance board and the utilities commission don't give a hoot.

Edited to remove a political reference, which is one of the five things we can't talk about on these forums - llecs, myFICO moderator

[RobertEG]

FICO, in addition to the vanilla scores we receive as consumers,has separate agreements with certain industry specific clients that emphasize different concerns in your credit file, based on their needs.  The most notable are mortgage-tailored scores, auto industry scores, and insurance-based scores.  Consumers dont have access to these scoring differences.  Only FICO clients have access.

In many cases, if you apply for and are declined credit, or are offered less attracrive terms on a transaction than the terms you applied for, then they are required to disclose to you the scores upn which they based their decision.

Thereafter enters the lack of legal requirement for them to detail how they arrived, based on the business algorithm that was used, specifically how you were dffererentiated.  This enters into the world of intellectual property law. Federal intellectual property law recognizes, as one of its foundations, the ability to retain specifics of  their products as "trade secrets."  Coca-Cola, as an example

FICO scoring algorithms are protected federal trade secrets. They cant be compelled to disclose to you how, in your case, an insurance-based FICO score was scored different from a vanilla consumer FICO score, a mortgage-based score, or an auto-based score.

You may not like it, but that is the way proprietary  trade secret law works.

[Anonymous]

While I’m inclined to agree with OP, it is also obvious that someone who is defaulting on payments has more chances of filing claims as he doesn’t have his own savings to fall back on. It could also mean that someone is in a habit of defaulting payments and might cook up something to earn some extra money, for example stage an accident to make money from his auto insurance company. I know this sounds really disrespectful, but there are all kinds of people in this world and businesses have to keep a lookout for the bad eggs. Many a times, those who are genuinely unlucky though, get caught in the cogs of bureaucracy.