Credit ratings and insurance

There is some controversy in the insurance industry about using credit ratings as an underwriting tool. One argument is that credit ratings are distinct from insurance and should not impact rates.

However, there is a correlation in the insurance company’s eyes between a customer’s likelihood of claims and defaults, and their creditworthiness. A poor credit score makes it more likely than not that the insurance company will see you as someone who could have challenges paying your policy and more likely to file a claim.

People are hesitant about credit checks because they understandably want to avoid an impact to their rating. Once we inform them that there is no negative impact, their concerns disappear.

If a customer consents, their insurance company can perform a soft credit check. This kind of check does not show the insurer the policyholder’s credit rating or any other sensitive information.

All the insurance company sees is an updated quote that factors in the credit rating. The worst case scenario is that the customer does not receive a discount. A check only determines the amount of discount a customer receives. There are no penalties or surcharges. In other words, things can only get better.

Customers with high credit scores can receive a discount of up to 25 percent. Using credit scores to reduce insurance premiums is an excellent way to contain costs without compromising coverage. This discount can be applied on newly instated policies and at renewal.

If the customer has a registered incorporated or limited liability company, the insurer runs a check on both the company and the owner. For self-proprietors, the insurance company runs a check only on the individual. It’s trickier with businesses because owners don’t always declare everything that they make.

Additionally, many business owners will have a lot of credit and that will impact their score. They do have more credit capacity than individuals and a high amount of credit does not necessarily mean they struggle with their obligations. Regardless, there’s no penalty to the business.

Do you have questions about how you credit rating impacts your insurance? Contact us today and let’s learn from each other.