A common question I hear from customers is this: “What does my credit have to do with my insurance?” Apparently, quite a bit. In today’s marketplace, it is very difficult to find an insurance company that does not use credit as a strong factor in the pricing of their policy. As a matter of fact, of the 15 insurance companies that we represent, we have exactly one that does not use credit as a pricing factor. Granted, all of the companies use it in varying degrees, but the point is they do in fact use it. I did a random experiment trying to see the actual impact that an insurance score, of which credit is a strong factor, can have on the price of insurance. Please note, this is not a scientific study, but rather, a real life example on how much a price can vary based on a person’s credit.
The two prospects that I used are the same sex and age, have the same marital status, and for purposes of this experiment, have the same address. They both have no tickets or accidents in the past 5 years and have no property claims in the past 3 years. In essence, these two prospects are the identical risk except for their financial history. The first prospect, Bob, has superior credit with little or no debt. He was quoted with the top insurance score for all applicable insurance companies. The second prospect, Jim, has poor credit with high levels of debt. He was quoted with the lowest insurance score for all applicable companies. So what were the results?
Of the companies that I quoted, below was the most drastic difference in price.
Auto Premium – $745 a year
Home Premium – $614 a year
Auto Premium – $1705 a year (129% higher rate than Bob)
Home Premium – $1138 a year (85% higher rate than Bob)
While it may seem outrageous that a company would have such a drastic difference in price based solely on an insurance score, this was not an anomaly. The average difference in price for all companies quoted between their best and worst tier was over 50% for both auto and home. In other words, someone with a poor insurance score can expect to pay 50% more than someone with an excellent insurance score.
This experiment illustrates the fact that a person’s credit can have an enormous impact on the cost of insurance, but it also gives consumers a chance to evaluate their own circumstances before looking for quotes. A person with excellent credit needs to make sure they are with an insurance company that weighs its rate heavily on credit or else they are not fully taking advantage of their strong financial history. A person with poor credit needs to find a company that does not use credit as a pricing factor. For those people in between, they need to find a company that uses the right balance of credit to maximize their discounts. Your insurance broker should be able to perform this service for you because searching company to company can be a laborious task. However you do it, just know that your effort could be worth hundreds of dollars a year.
Brian Burns CIC
Compass Insurance Group LLC