Although insurance companies are convinced good credit equates to lower risk, this remains controversial. For example, if you don’t always pay your MasterCard bill on time, is it more likely you will cause an accident? (Critics of the use of credit information in insurance underwriting would suggest your astrological sign has greater predictive value.) How an insurance score is used is left to the insurance company; your carrier, if you ask, might or might not tell you your insurance score. My company (USAA) was unable to tell me my score. The Colorado General Assembly has dealt with this controversy , most recently in 2003, and what has evolved are statutes saying insurance companies can indeed consider credit history when deciding who to insure and what premiums to charge.
Curiosity now piqued, I found lots of information on the internet about insurance scores. They seem to be a numeric score derived, in part, from information out of a credit file from a credit reporting agency but with additional information and analysis woven into the formula. I was told I was benefiting from the use of an insurance score and I would pay a higher premium if my insurance company didn’t use my insurance score in determining my premium. I was further told my insurance score had been provided by LexisNexis Risk Solutions, a company that processes data of all sorts for all sorts of customers having all sorts of needs. I was told LexisNexis considers “many factors” in determining an insurance score.
Insurance scores are supposed to help insurance companies manage risk by predicting who is likely to file claims during a policy period. As if anticipating my question, my information packet also presented me with another disclosure titled, “Insurance Scores.” This told me an insurance score “is based on various aspects of the primary policyholder’s credit history … and is different from a credit score.”
Jim Flynn is with the Colorado Springs firm of Flynn & Wright, LLC. Email email@example.com.
Also, dovetailing on a provision in the federal Fair Credit Reporting Act, under Colorado law, if the use of credit information results in “adverse action,” such as a nonrenewal or a premium increase, the insurance company must give you a notice that identifies the credit reporting agency that produced the information and tell you about rights you have under the federal act to challenge information in your credit file. However, under these laws, insurers must notify you if they use credit information in connection with an application for coverage or the rate you will pay. And, if you ask, they must tell you the “significant characteristics” of credit information that affect your insurance score.
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