If you have no credit you could be paying 65 percent more for car insurance than those people with excellent credit. Consumer Reporter Susan Hogan explains a new report showing how your credit score affects what you pay for car insurance.

Personal Lines Policy for PCI Response:

“The issue of insurance scoring has been repeatedly reviewed and analyzed by regulators and legislators and is comprehensively regulated by the states. Experience has shown that policyholders with positive credit information are less likely to incur losses. Combined with familiar factors such as years of driving experience, previous crashes, and the age of your vehicle or home, insurance scores are another way for insurers to differentiate between lower and higher insurance risks.

“Numerous studies show this common sense method is far more reflective of driver safety than one’s own driving record, as records can be wiped clean of injurious car accidents and safety violations through the completion of easy driver safety courses. In fact, studies go on to show most consumers benefit from the use of this system since it ultimately keeps rates affordable, a fact backed up by a Federal Trade Commission report which found credit-based insurance scores ‘may allow insurers to price coverage more efficiently producing cost savings that could result in lower premiums.’

“At present, almost every state in our Union regulates to ensure auto insurance rates are not excessive or unfairly discriminatory.

“The auto insurance industry serves the driving public well by providing a highly competitive and pro-consumer marketplace that gives consumers many options to choose from. As a result, if you don’t like your quote or the cost of your insurance, you can always shop around for a better price and we encourage consumers to do so.

“One of the benefits of shopping around is that if consumers have questions or concerns about how their price was determined, their agent or company can walk them through the process and discuss ways to adjust the price and coverage offerings.”

-Alex Hageli, Director, Personal Lines Policy for PCI

Insurance Information Institute Response:

The findings are nothing new. The use of credit-based insurance scores is a common business practice in the insurance industry that benefits most consumers by saving them money. Numerous studies by federal and state regulators, universities, independent auditors and insurance companies have shown that an individual’s credit history is a proven, accurate indicator of how likely that person is to file a future claim and the potential cost of that claim. Furthermore, a moderate-to-strong credit history may offset underwriting factors, such as a poor driving record or number of miles driven, thereby improving the availability and affordability of insurance for more consumers.

By using insurance scores, insurers can better forecast future performance and thus make sure that each person pays a rate that more closely corresponds to the risk of loss they represent. This means that if you are less likely to have claims that will result in losses for the insurance company, your insurance company can offer you a lower premium. And because those that will likely have claims (or larger claims) will end up paying higher premiums, insurance scores help your insurance company make sure that you won’t end up paying more than you should to help cover someone else’s future claims.

The use of credit-based insurance scores varies widely among insurers. Some use it only to rate new customers or those who are adding new vehicles, while others utilize the rating tool in virtually all aspects of the business including new business, renewal, policy modification and review every three years.

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