becka
<font color=green>Proud Mommy of sweet Nathan and
- Joined
- Aug 17, 1999
- Messages
- 13,852
I am not an expert in insurance (and I didnt even stay at a Holiday Inn last night 
) so take my post with that in mind. However, I do work for an insurer that sells both auto and other lines (home owners, farm owners) insurance and I have been involved in the rating and statistical side.
Insurance rating works on a pool theory as mentioned before. You are not rated individually but they place you in a risk category where you match most closely and those are the rates you get charged. Rates are based on very large samples of loss data from those with similar characteristics. The more similar your characteristics are to those of others they more accurate the insurance companies can rate you. Insurance companies look at all kind of rating factors in auto insurance: age, marital status, car driven, miles driven, location, driving record and yes even credit score. Insurance companies will use any rating factor they can that is not illegal and has shown to better predict loss rates. If the brand of toilet paper you use is shown to predict auto losses in the future then expect that to be on your next auto insurance application.
As un-PC as it may be credit scores and loss experience do correlate and study after study has shown such a correlation so insurance companies have been using it. Some states are outlawing the use of credit score but in most states it is still allowed and because the experience has shown it to be very accurate at predicting losses I would not expect it to go away anytime soon. As individuals it can seem unfair but when you look at the data of thousands and thousands of people it makes sense. Because it is so accurate many are using credit scores at renewal and people are seeing their rates change. My company will never degrade your rate based strictly on a lower credit score alone if it changes over time but they will reward you if it goes up. If as a new customer you have a 700 credit score and then it drops to 500 the drop will not be reflected in your rates because we use the highest credit score. If you start at 500 and go up to 700 at your next renewal then we use the higher credit score. Some companies do this and others do not.
Contrary to popular opinion insurance companies are not getting rich off of premiums. The premium that companies can charge is heavily regulated by each states Department of Insurance. As mentioned it can be very difficult to get a rate increased approved by the state and it will not be approved unless the companies have the loss data to back up the increase. Companies are allowed to make a small profit off premiums but for most of the industry we are talking pennies on the dollar in a good year. Most years show a loss especially in the home owners business. Where insurers really make most of their money is in investments. When you pay your premium that money is invested and that is where the $$$ is for the companies.
) so take my post with that in mind. However, I do work for an insurer that sells both auto and other lines (home owners, farm owners) insurance and I have been involved in the rating and statistical side. Insurance rating works on a pool theory as mentioned before. You are not rated individually but they place you in a risk category where you match most closely and those are the rates you get charged. Rates are based on very large samples of loss data from those with similar characteristics. The more similar your characteristics are to those of others they more accurate the insurance companies can rate you. Insurance companies look at all kind of rating factors in auto insurance: age, marital status, car driven, miles driven, location, driving record and yes even credit score. Insurance companies will use any rating factor they can that is not illegal and has shown to better predict loss rates. If the brand of toilet paper you use is shown to predict auto losses in the future then expect that to be on your next auto insurance application.
As un-PC as it may be credit scores and loss experience do correlate and study after study has shown such a correlation so insurance companies have been using it. Some states are outlawing the use of credit score but in most states it is still allowed and because the experience has shown it to be very accurate at predicting losses I would not expect it to go away anytime soon. As individuals it can seem unfair but when you look at the data of thousands and thousands of people it makes sense. Because it is so accurate many are using credit scores at renewal and people are seeing their rates change. My company will never degrade your rate based strictly on a lower credit score alone if it changes over time but they will reward you if it goes up. If as a new customer you have a 700 credit score and then it drops to 500 the drop will not be reflected in your rates because we use the highest credit score. If you start at 500 and go up to 700 at your next renewal then we use the higher credit score. Some companies do this and others do not.
Contrary to popular opinion insurance companies are not getting rich off of premiums. The premium that companies can charge is heavily regulated by each states Department of Insurance. As mentioned it can be very difficult to get a rate increased approved by the state and it will not be approved unless the companies have the loss data to back up the increase. Companies are allowed to make a small profit off premiums but for most of the industry we are talking pennies on the dollar in a good year. Most years show a loss especially in the home owners business. Where insurers really make most of their money is in investments. When you pay your premium that money is invested and that is where the $$$ is for the companies.
