Yonkers, N.Y. – The August issue of Consumer Reports warns consumers that even drivers who have spotless driving records and have never had an at-fault accident may be faced with higher premiums if their insurer uses credit-based insurance scores.The report describes credit-based insurance scores as numbers that are computed from bill-paying and loan data collected by the major credit bureaus. They have become as important in determining annual premiums as driving records and neighborhoods, the magazine states.
Consumer Reports' investigation found that scores and their uses vary among insurers and that credit-based insurance scoring could cost many drivers hundreds of extra dollars.
Credit scores used by insurance companies weigh credit data differently from traditional lender scores, the article notes, and as a result, insurance scores can penalize even those consumers who use credit reasonably.
Few insurers routinely disclose scores or what role they play in setting premiums, according to Consumer Reports, which sought and obtained scoring models filed with regulators in Florida, Michigan, and Texas used by 9 of the 10 largest U.S. auto insurers.
CR found that there are no standards. Each company uses different models and weighs different credit-report information. Some big companies find scoring useful only for new customers, not renewals, while others may use it for both. Moreover, CR notes that the credit data from which the scores are derived have a reputation for being inaccurate and out of date. Despite such problems, most states allow insurance scoring, and efforts to limit or ban it have been met with aggressive lobbying by insurers.
Advocates from Consumers Union, the publisher of Consumer Reports, have been urging legislators and regulators in several states to ban the use of credit scoring to underwrite homeowners and auto insurances policies. Those efforts have met with opposition from insurers. This year, insurance industry lobbyists helped to squelch legislation to end credit scoring in Colorado, Delaware, and Minnesota.
To illustrate how insurance scores affect premiums, CR worked with an actuary to calculate premiums charged by preferred/standard-risk companies run by eight of the largest U.S. insurers operating in Florida. The actuary calculated a "neutral" score for a 28-year-old single man with a clean driving record in Orlando, Fla. who owns a 2005 Toyota Camry LE. With a neutral score, the hypothetical customer would pay roughly the same annual premium at Nationwide and GEICO, about $1,150. But with the worst possible insurance scores, the premium would increase 29% to $1,468 at GEICO and 47% to $1,706 at Nationwide.
The report urges consumers to take steps to protect themselves when applying for a car-insurance policy, including: Getting quotes from several insurers; using credit cards that insurers favor such as oil-company credit cards and national bank cards; asking insurers about their scores; and asking for exceptions if their score has been adversely affected by divorce, Hurricanes Katrina or Rita, job loss, the death of a family member or serious medical problems.
Source: Consumers Union
