A Low Credit Score Could Mean Higher Home Insurance Costs

By: Nicole Vattimo

Earlier in the month, HuffPost published an interesting article (link here) on how our credit scores impact our homeowners insurance premiums. The article dissects a study completed by Quadrant Information Services. It's probably not surprising that the study found there is a direct correlation between a poor credit score and a higher homeowners insurance cost. What surprised me, however, was just how much higher your insurance premium could be if you have a lower credit score, when compared with someone who has a high score.

According to the article, "The study found that if you have a fair (i.e. median) credit score, you may pay 36 percent more for home insurance than someone with excellent credit. That’s up from a 32 percent increase in 2015 and 29 percent in 2014."

So, not only are you paying more for home insurance if you have an average credit score, but exactly how much more is increasing over the years.

"What’s more, if you have poor rather than excellent credit, your premium more than doubles, increasing by an average of 114 percent (up from 100 percent in 2015 and 91 percent in 2014)," says the article.

What percentage more you will pay if you have less-than-stellar credit varies state-by-state, with some states weighing a credit-based insurance score more heavily than others. The article lists the states that place the most importance on credit score, and explains what goes into calculating your credit-based insurance score.

The article also discusses why insurance companies use credit-based insurance scores. In short, credit scores are predictive of loss behavior. Meaning people with lower scores tend to have more insurance losses.

Interestingly, there are three states, California, Maryland and Massachusetts, that ban the use of credit in setting home insurance prices.

The article discusses the arguments against using credit score in insurance. The top arguments against this practice: (1) it is unfair to consumers in lower socio-economic demographics, and (2) "there’s no uniformity or standardization to how this data is used" since different insurers weigh credit scores differently. Meaning some may consider them heavily, while others don't.

Since we are all consumers of insurance, in some way or another, I think it's a very worthwhile read to better understand what may impact your premium, and what is happening in the insurance industry at large.

Full link to HuffPost article: http://www.huffingtonpost.com/entry/why-poor-credit-can-triple-your-homeowners-insurance_us_590b4c30e4b046ea176ae88b

Claims Increase the Cost of Insurance

By: William Forbes

In last week's blog, I shared a story from Crain's Chicago Business, which said State Farm has just reported its worst year ever in terms of claims reported and the amount of money it lost insuring cars. The article hit on a number of trends insurance agents are seeing across the industry - distracted driving is leading to increased claims, and the increased claims are driving the price of insurance up for all of us. Even those of us who do not report claims are feeling the effects, as insurers raise rates for everyone in an effort to maintain profitability.

And, now, on the heels of that article, NBC News 10 recently published findings from an annual study conducted by insuranceQuotes that indicates people pay more for insurance after reporting a single claim. The article says specifically, "drivers now pay an average of 44 percent more for car insurance after making a single claim of $2,000 or more." Reporting a second claim is even more costly.

I'm not writing about these articles to scare people away from reporting claims. There are times when insurance claims are necessary, and in those cases, that's why you pay for insurance. The point I would like to make, however, is that you should really have a detailed discussion with your agent before you report a claim. Having a conversation with your agent is an important part of managing your finances. The fact is, reporting claims will result in higher insurance premiums, and possible surcharges.

More broadly, the increase in claims across our state have caused insurance premiums to go up for everyone. Even if you don't report claims, your bill is being affected by these industry trends. That's why it's so important for us, as a community, to put an end to distracted, aggressive, and unsafe driving.

Check out the NBC article here: http://turnto10.com/i-team/consumer-advocate/study-looks-at-impact-of-claims-on-car-insurance-rates 

Your Driving Route Could Affect Your Insurance Price

By: William Forbes

USA Today recently posted an article about insurers using predictive technology to help personalize insurance rates. Specifically, the article focuses on insurers that are looking into weighing the risk involved with different travel routes and using that information to help determine an insured's rate. The goal of this rate method would be to customize insurance rates based on an individual's personal driving habits, but also to "promote and reward customers who mitigate risk," says the article.

We've seen rate and policy customization as a major trend in the industry recently.

Check out the full article here: http://www.usatoday.com/story/money/personalfinance/2016/11/14/route-risk-patent--car-insurance-rate-price/93287372/

Insurance Concept of the Week: Judgement Rates

Each week we will post and define an industry term or concept for our readers.

To conclude our discussion of rates, judgement rates are determined and applied to individual insureds by the insurance company. Judgement rates are used for commercial insurance. Each insured is evaluated on its own merits and chance of loss.

Check out all our posts on rates: 

1. What is a rate (link here)
2. Manual/class rates (link here)
3. Merit rates (link here)

Insurance Concept of the Week: Merit Rates

Each week we will post and define an industry term or concept for our readers.

To continue our discussion on rates, a merit rate considers the characteristics of a particular risk, and depending on those characteristics a premium can be increased or decreased. Merit rates take into consideration a person's loss history, as well as steps he/she has taken to prevent loss, such as installing a smoke detector in a home.

Check out our previous posts on: (1) what is a rate (link here), and (2) manual/class rates (link here).

Insurance Concept of the Week: Manual or Class Rates

Each week we will post and define an industry term or concept for our readers.

Continued from last week's discussion on rates (link here), manual or class rates group insureds into classes based on similar characteristics. These classes receive the same rate. Manual rates are often used as the starting point for developing merit rates, which we will look at next week.

Insurance Concept of the Week: Rate

Each week we will post and define an industry term or concept for our readers.

There has been a lot of coverage in the news recently about insurance rates. So, we are going to use the next few "Concept of the Week" posts to look more closely at insurance rates and how insurance companies arrive at them.

A rate is a price per unit, and it is used to determine the total premium of an insurance policy. Rates establish a price structure to cover claims and other insurer expenses, as well as provide profit for the insurer.

Next week we will start looking at some of the different types of rates used by insurers.