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Car Insurance Companies Know You Well

We do our research and we get online and as consumers, we tend to be pretty proud of ourselves, thinking we know our insurers pretty well. We feel like we have gotten to the bottom of things because we read some consumer website talking about different insurers and comparing them to one another.

It is great that consumers take the time to study the situation sand think about it before making a final decision on which auto insurer to go with. But we needn't kid ourselves. The ones who have all the knowledge in this relationship are the auto insurance companies. When you apply for auto insurance or file a claim, you probably have no idea how much information flows back and forth between the insurance company and private businesses.

Insurers Score Your Finances

The auto industry uses credit based insurance scoring on an across the board scale. Every major company selling insurance products in the U.S. uses credit based insurance scoring to assess risk among their auto insurance customers. This practice has come under fire some in the past few years, particularly at the state level in various legislatures across the country. The argument against it, among other things, is that the use of credit in auto insurance scoring discriminates against the poor.

But as of now, the practice has not been forcibly revoked, and getting the industry to discontinue credit based insurance scoring will probably take an act of Congress. One of the interesting things about your insurance risk score, this number arrived at by the auto insurance companies can't be divulged to you even if you buy your own credit report. It is based on that report, but it not the same score.

According to those in the industry, the difference lies in the way the data is used. A regular credit score weighs data in order to evaluate your past use of credit. But a credit based insurance score takes that same data and uses it to determine how likely you are to file claims in the future. The industry has spent considerable time and money researching past credit and claim connections, and they have come out with some pretty strong evidence to the effect that poor credit equals high risk for claims, and good credit equals low risk for claims. If you have managed your credit well you are likely to manage your car well and file fewer and more affordable claims over any given time period than someone who has not managed their credit well.

In most cases, these insurance risk scores are used by insurers to place drivers into one of three categories: preferred, standard, and high risk drivers. Names for the grouping can vary, but the three tiered system is fairly common among the major insurers.

Supporters Point to Scoring Benefits

Credit based insurance scoring has plenty of supporters to go with its critics. Thos in support of the system say that there really is a correlation between your score and your likelihood to make a claim, so the use of the score is valid. They also point out that credit based insurance scoring helps more people than it hurts financially, because it gives companies a vehicle to get the families with high credit scores into discounted rate programs.

But critics say it permits insurers to charge higher premiums to those in lower income brackets, who are likely to have poor credit scores as well. These days, most days do have laws in place that curtail or restrict the use of credit based insurance scoring. They usually say that scores cannot be used as the only basis for setting rates or determining eligibility for programs. There are also safeguards in place now in some states where if a consumer had a strange month or some unusual financial situation that caused a temporary drop in their credit score, they have time to rectify the problem before insurers could swoop in and raise their rates on them.

Keep Up With Insurers

The various insurance companies use different numbers provided by various credit reporting agencies to plug into their credit scoring formulas. They also buy and sell your information back and forth with these agencies. It is interesting that there is information out there that these companies can access for a fee, but that you cannot. Information about you is for sale, but you can't have it. As consumers we must be always on guard to keep a watchful eye on our credit and to make sure to take care of any discrepancies. These discrepancies may appear in one report at first, and then end up affecting our car insurance rates. Be diligent as consumers and as auto owners to always look out for your interests in these matters.


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