Credit Scoring

9 Pages 2308 Words

The Problem

The insurance industry has begin using customers ‘credit history as the basis for underwriting to determine the insurance premium. This method is being applied to all aspects of property and casualty insurance and in some states is considered an unfair practice. Using this method to determine customers’ premiums has made insurance unaffordable and caused a financial hardship to some customers. Organization renewal is an important factor in business, but this type of renewal seems to do more harm to the consumer by increasing profits for the insurance companies.

Micro Identification
The micro identification of this problem is that insurance companies will have a better book of business by writing insurance for people with high credit scores. Insurance companies have found that people with high credit scores usually will not file a claim for something they have the money to pay for themselves.

Macro Identification
The macro identification of this problem is that customers with low credit scoring usually do not have disposable income and rely on credit or insurance to cover a loss that occurs.

When using credit, payments are usually late or not made, which the insurance companies use to place these people in a high-risk category for premium underwriting.

Initial Date that the Problem Exists
The first time I became aware of this problem is when I was filing a new insurance policy form and rate memorandum in the State of Maryland. The Maryland Department of Insurance sent me a letter stating, we need to state in the policy that if credit scores were being used as an underwriting tool, it could not be the only means used to determine the customers risk factor in determining their premium rate. I started researching the trade publications, National Underwriter, CPCU News Magazine, Best’s Insurance News, FairIsaac and Consumer Federation of America, Independent Insurance Agent, as a few of my sourc...