On Monday, I made a rather lengthy post in an effort to clear the air a bit on the subject of credit scoring in insurance, especially in the context of the upcoming vote on Oregon Measure 42.
I received some feedback by email that illustrates that I may have missed a couple of points. Specifically:
I’m an Oregonian and also a Mortgage Specialist. I deal with credit issues every day and “get” to see the effects of poor financial judgements but also the debilitating effects of life (i.e. job loss, death of primary wage earner, natural disaster, etc.). What is amazing to me is how quick the insurance companies pull credit and raise rates to those individuals who have “experienced” life[...]
There are two concerns here:
Adjusting insurance rates at renewal due to change in credit history I am adamantly opposed to the concept of insurers automatically adjusting rates at renewal based on changes in credit history. While there are statistical/actuarial reasons why using more up-to-date information is always a good thing to do, I personally think mandatory adjustment of rates rates is bad business and bad public policy. While I have no problem rating/underwriting a new customer based on all the information legally available to me, I don’t want to do price changes at renewal for reasons that seem random to the consumer.
(As before, these are my opinions, and not necessarily those of my employer, the industry, or the actuarial profession.)
In Oregon at least, I believe that state law today says that insurers may consider credit information only when a customer comes to them as new business. There is an exception to that, however. Once a year, the customer may request to be rescored. If his/her credit report has improved, the insurer must use the new/improved score rather than the original score.
In other words, in Oregon, if you run into problems due to disaster within the family and perhaps miss a few bills, your auto or homeowners insurance rates shouldn’t automatically increase just because of the delinquencies appearing in your credit report.
That is not necessarily the case in all states. In many states, the laws or regulations require insurers to refresh the credit score they have on file for you at least once every three years. Your rates could change as a result of that refresh. If your credit history has been improving since you first obtained coverage, this is potentially good news — your rates could drop with no effort on your part. However, if you’ve been a little lax about paying your bills…that could result in an unpleasant surprise when the insurance bill arrives.
I don’t like it, but I was out-lobbied on this point in those states.
Responding to impact to credit reports due to extenuating circumstances Because of the concerns about what could happen to a consumer’s credit score due to the impact of a death in the family, divorce, disability, loss of job, etc., in a few states, the laws or regulations were written to require insurers to make exceptions when extenuating circumstances exist.
In other words, assume that you’ve missed a few bills because you’ve lost a job, but you want to shop your insurance coverage. You’re quoted a higher premium because of those delinquencies. In a few states, you have the right to contact an official with the insurance company, and explain your case. If your credit report reflects your situation, the insurer is required to make an exception.
If memory serves, Oregon is not one of those states.
If this were the sole reason you have to support Measure 42, I think a better response would be to push legislators to require such exception-making in Oregon. Getting rid of scoring altogether would be overkill.