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Insurance rates tied to credit

Spohr, George

SYRACUSE - Insurance companies are getting the word out that information gleaned from credit reports is used to determine insurance rates.

Some companies, including the state's fifth-largest auto insurance carrier, Progressive, are going so far as to set up tollfree phone numbers and consultation services to inform their customers.

"A lot of consumers are unaware that credit is used to establish insurance rates," says George Butler, spokesman for the Insurance Foundation of America (IFA). And while the use of credit information in determining insurance rates isn't new, "it's new that they're getting the message out. It's new that they're advertising it to this level."

Butler says Progressive has been most aggressive in that public-relations effort.

New Yorkers who obtain a quote from Progressive can request a report that explains what elements of their credit history are reviewed. In addition, a tollfree number is available to inquire about exceptions based on extraordinary life events that may have negatively affected their personal credit history.

Progressive created a specially trained "Credit Information Team," which acts as a consulting group to those who have questions or concerns about how the company uses credit information to price policies, says Richard Crawley, Progressive's agent product manager for New York.

Progressive uses credit as one of its underwriting factors for these reasons, Crawley says:

* Credit history is highly predictive of future losses.

* Independent research conducted by EPIC Actuaries, LLC and the Virginia Department of Insurance shows there is a correlation between people's credit history and the likelihood of them becoming involved in an accident.

* In reviewing more than 600,000 of its customers' claims, Progressive found that the average loss per vehicle per year for policyholders with the best Progressive credit scores is about half that experienced by those with the worst Progressive credit scores.

* Using credit information allows the Progressive companies to offer more competitive rates to more consumers.

Butler says that can be summed up in one word responsibility.

"The more responsible the individual is, the less of a risk they pose," Butler says. "When a consumer has a poor credit rating due to late payments, lack of payments, overuse of credit cards, things like that, that indicates a lower level of responsibility. If a consumer has great credit and they are very responsible about that, then that's a reason to think they're going to be a better bet for insurance coverage.

Progressive might be trying to pre-empt public criticism, Butler says. He notes that the issue of using credit information in determining insurance rates generated some controversy in New York and that some lawmakers are considering ways to curtail that practice.

"When you initially hear of it, it is kind of disconcerting," Butler admits. "'Oh, I missed a payment. I'm going to have higher insurance rates.' But in truth, that's just one of the pieces looked at when establishing coverage. It's being used in addition to other factors."

At Progressive, credit is one of "several underwriting tools" used to set rates, Crawley says. Also determining factors are the driver's age, vehicle year, make and model of the vehicle, and the number of driving violations. Also, Progressive doesn't use credit history to refuse to insure a driver or to cancel a policy.

"As an industry, we haven't done a good job of helping people understand credit and its role in determining auto-insurance rates," Crawley says.

Progressive insurance policies are sold through approximately 4,000 independent insurance agencies in New York and more than 30,000 independent agencies in the U.S. The Progressive Corporation, the holding company, has headquarters in Mayfield Village, Ohio.

Copyright Central New York Business Journal Nov 14, 2003
Provided by ProQuest Information and Learning Company. All rights Reserved