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June 12, 2007
Many insurance carriers recently have begun to utilize
individual credit histories as an indicator of future losses. Many clients
ask what does credit have to do with insurance, and is this fair?
The answers are complex. You start with the question of who deserves the
best prices when it comes to underwriting decisions. If you want to purchase
auto insurance then the obvious answer is the question, how is your driving
record? Does the potential insured have tickets or accidents? Good
questions, except in
Texas
both these questions are easily hidden.
Anyone with a ticket can seek an attorney who specializes in fixing tickets
so they don’t reach agencies that report these incidents. Some
municipalities also offer programs where an extra amount of money will
forgive your fine within a sixty day period if no other traffic infractions
take place within that period. There are “driving schools” that teach
“defensive” driving while earning a 10% discount off your insurance that
also erases some driving violations after you take the course. A violator
can even take a “defensive” driving course over the internet for a small
sum of money.
Many drivers repair their own cars if the damage is under a thousand dollars
to prevent insurance carriers from having a record of the accident. So what
does an insurance carrier do? In short, most carriers have discovered that
most people have a credit report in common. They have also found in their
statistics that the worse the credit report is the more losses that person
will experience within a predictable future. Therefore the logic is that the
people with the most predictable losses will pay higher premiums than the
people who will have less or no losses.
Insurance companies claim they have mountains of statistics to prove their
point. The concept has been
challenged in most states and the courts have found the method to be a valid
predictor of losses and claims that result from accidents.
It has become a modern imperative that people do the best job they can in
maintaining their good credit ratings. It has been found that even having
too much credit exposure such as having too many credit cards can result in
a lowered financial score. This impacts your insurance prices in many
instances as well as driving up your interest on such purchases as a new
automobile. Many finance managers now utilize “fico” scores to justify a
higher rate of interest for the purchase of your brand new car.
Recently, the
Texas
legislature has taken a hard look at this practice in regard to insurance
scoring. There have been some modifications made but the practice has proven
to be an effective predictor for future losses. The consumer can earn a
better rate by not only driving safely, but also maintaining good to
excellent credit scoring. Pay that Visa bill on time! If you don’t, it
could cost you more than the late fee!
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