Questions about insurance scores?
Though insurance companies have used customer credit as an underwriting factor since the 1970s, usage has skyrocketed in recent years, prompting questions about how and why credit information is used. To help agents address commonly asked questions about credit-based Insurance Bureau Scores (IBS), Dave Pugh from ChoicePointTM recently attended a Home Office Agent School. The following questions are some of the many he answered in his presentation to the 35 agents who attended the session.
Why do companies use IBS?
IBS has proven to be effective in determining risk. Dave explained that in every study ChoicePoint has conducted, the results show that the better a consumer’s credit score, the lower the loss ratio and claims frequency will be.
And, contrary to common mis-conceptions, income does not play a factor. In 1999 an American Insurance Association study showed the same average score across all income levels. In fact, lower income groups had slightly better scores.
"It’s not how much money you make – it’s how you use it," Dave says.
How does the hailstorm know to hit the house with bad credit?
Obviously, nature doesn’t discriminate based on a consumer’s IBS. However, Dave says that it all goes back to how well consumers’ control their finances. Those with good credit are more likely to maintain their assets – i.e., move the car into the garage when the storm hits, replace the two missing shingles right away – and may likely suffer fewer damages from storm events.
What about people who always pay cash?
Julie Kattre, an agent from Greater Insurance Service Corp. in Madison, dealt with an older couple who is wealthy and financially stable, but pays for everything with cash. The couple’s IBS score showed up as a "no hit." Dave says 6-8 percent of consumers are "no hits" and usually perform in the average range of consumers.
Similarly, a "no score" means the consumer is in the credit file but does not have enough recent activity for an IBS score. Dave says those clients statistically perform less than average.
(GC handles "no hits" and "no scores" as neutral, meaning we apply neither a surcharge nor a credit.)
If you don’t use a credit card often, will it still show up on a credit report?
Yes, a credit card account will show up on the report if you rarely use it, and even if you cut it up. In some cases the number of open accounts may affect an IBS score. That’s why it’s a good idea for consumers to cancel accounts they rarely use. ChoicePoint has found that about half of the credit card companies will allow you to cancel over the phone, and half require a written request.
Dave says it’s a good idea to consider how long you’ve had a credit card before canceling it. A long history of responsible use reflects positively on your credit report. If you cancel all of your old cards and replace them with new cards, that history drops off after seven years. (A closed credit card account stays on your report for seven years; a bankruptcy for 10.)
Do debit cards show up?
No. Neither do utility payments or farm credit associations.
Will one late payment result in higher premiums?
Typically one late payment won’t bring a score down dramatically. What brings a score down rapidly is continuous non-payment, bankruptcy or a lien. "The general rule is: You can bring them down fast, but it takes a long time to bring them back up," Dave says.
Why do customers’ scores change depending on what company I order through?
Different companies use different models. ChoicePoint has four standard models, and some companies have their own customized credit reports. (GC uses the ChoicePoint Attract model.)
What’s not in the IBS formula?
ChoicePoint’s formula doesn’t factor in location/address, net worth/salary, income, marital status, occupation, nationality, age, religion, race or gender.
What if a client is marked as "deceased?"
Gwen Bauman of Mower Insurance in Chippewa Falls, Wis., has had two clients appear as "deceased" on their IBS. Both times it was because the person had a joint credit card account with someone who passed away. In this case, the creditor who marked the account "deceased" must make the correction. Please contact your underwriter if you ever run into this issue.
What if customers want a copy of their report?
Customers who have been adversely affected can obtain free copies of their reports and dispute any information. This is part of the consumer disclosure process mandated by the Fair Credit Reporting Act. If they have been negatively affected, they should receive an adverse action notice from the insurance company. Those consumers should be referred to ChoicePoint at consumerdisclosure.com or (800) 456-6004.
If they want copies of their reports as a curious consumer, they can contact the same (800) number or obtain a copy from choicetrust.com for $12.95.
What additional information can we send home with our clients?
GC created the consumer brochure "What’s credit got to do with it?" (ADV. 495) to help answer your customers’ questions about IBS and its impact on them. To order copies, visit the agents’ section of generalcasualty.com. If you have any other questions, please contact your personal lines underwriter.
For more information please contact Anne M. Smith.