Risk & Business Magazine Waypoint Winter 2021 - Page 14

WHY COMPANIES USE IT AND HOW IT COULD HELP YOUR INSURANCE RATES
CREDIT CONSENT

Credit Consent :

WHY COMPANIES USE IT AND HOW IT COULD HELP YOUR INSURANCE RATES
BY : ALLISON GANDY

The insurance industry has been

changing rapidly these last 10 years . One of the most notable changes for consumers was the introduction of credit scoring . When it was first introduced , it was viewed by the public as a huge invasion of privacy and irrelevant to insurance . So why was this introduced , what is done with it , and how much does it actually benefit insurance companies to use your credit for the purpose of insurance ?
Credit scoring was introduced by most insurance companies between 2014 and 2016 . It is used as a means of determining your likeliness of having a loss as well as how severe that loss might be . It might sound crazy to try to connect the two , but years of research and claims history have shown that the connection between good credit scores and lower likeliness of losses
( and severity of losses ) is quite strong . Think about it . What makes up a person ’ s strong credit score include diligently paying off debt , not borrowing more than they can afford , and ensuring they don ’ t miss payments , among other factors . These character traits would also apply to how someone views things like home maintenance or how likely someone is to be able to afford to maintain their home properly , both of which work to prevent claims from happening or reduce how bad claims might be .
If you feel it is important to pay off your credit card right away , you are quite likely to replace your roof when it ’ s time , rather than waiting for it to become leaky . It may also indicate you are likely able to afford to replace your roof as sometimes you know it needs replacing , but your finances don ’ t allow it .
A large portion of home insurance claims are avoidable issues . Things like overflowing bathtubs , aging hot water tanks bursting , an expensive purse stolen from a parked car — all of these incidents are preventable .
IT IS THEREFORE REASONABLE TO ASSUME THAT FINANCIALLY RESPONSIBLE PEOPLE ARE LIKELY TO BE RESPONSIBLE IN OTHER AREAS OF THEIR LIFE .
While this may not exactly be a popular explanation , from a business standpoint , we can understand why insurance companies would feel more inclined to use credit scoring to determine an individual ’ s risk exposure . As a result , one of the biggest discounts available from insurance
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