Very few insurance policy holders realize that their credit reports are actually a very important factor in deciding their homeowner and automobile insurance premiums.
And the fact is that a simple mistake in your credit report can affect your insurance premium cost adversely.
And its not just the common man, Mississippi Insurance Commissioner Mike Chaney said that his insurance rates were increase by almost 10 percent due to an error on the part of the insurer at Safeco auto insurance.
Insurance companies follow a policy which is based on the belief that customers who have a bad credit history tend to file more insurance claims. A lot of consumer advocates argue with this philosophy saying that general statistics should not be taken into account. They feel that people must be handled on a case by case basis and their rates must be fixed based on their previous claims and condition of the asset.
This argument is all the more important given that the recession has resulted in a number of people having a bad credit history. This policy of using credit history to decide the rate increase allows the insurance companies to increase premium rates without a state approval.
On the other side of the fence, the insurance companies readily defend their strategy by saying that statistics do show the relation between insurance claims and a bad credit history.
And besides the consumers who have a good credit history are rewarded for their diligence with better premium rates.
Robert Hartwig, heads the industry’s nonprofit Insurance Information Institute. He says that a person who is careful about his or her finances will obviously be someone who is also responsible in other walks of life. That person will be more likely to follow traffic rules and ensure that the car he is driving is well maintained.
He also made a very important observation by saying that a good credit report is not only going to affect whether or not you get a loan, nowadays it has a much bigger impact on ones everyday life.
Robert Hunter, a former Texas insurance commissioner and National Flood Insurance Program administrator, does not believe in the relationship between a bad credit history and higher insurance claims.
Till date, the federal trade commission has been using data that the insurance companies were willing to provide. But recently, they have started a study that is trying to find the relationship if any between credit history and insurance claims. He believes that this study will have a few revelations to make. And he hopes that this will lessen the burden on higher insurance premiums on people who are already adversely affected by the financial meltdown.
What’s even worse is that the consumer is rarely aware of how his credit score is going to affect his insurance rates. Each insurance company follows a different methodology. So it all boils down to negotiating or having a better offer at hand. And with the lack of government regulation, there is literally no maximum retail price. Your best bet is to compare auto insurance rates at a site like Insuriffic.com, where you can quickly save hundreds of dollars on car insurance. .