I received the premium notice for our homeowners insurance the other day. It came with an insert that detailed what they called their "premier discount" program. The insert said the following:
The Premier discount is based upon information obtained from a consumer report which provides a score of certain credit characteristics. These insurance scores have proven to be predictive of future loss experience and are used to determine the level of discount that is applied to the policy.
A few more things I found interesting in the notice:
Insurance scores are requested for all driving age household members and are routinely updated every three years. However, at your request, we will update your score up to once a year.
The highest Actual Insurance Rating Score in the household is used to establish qualification for the Premier Discount.
The notice ended with the address for ChoicePoint (where the rating comes from) and says I have the right to see my report if I want to.
The insert listed the Insurance score and discounts as follows:
739 and higher - 44% discount
723-738 - 42% discount
690-722 - 38% discount
651-689 - 34% discount
625-650 - 30% discount
587-624 - 25% discount
531-586 - 19% discount
461-530 - 10% discount
460 and lower - 0% discount
While it was ovbious to me that our credit score played a major role in our insurance score, I wasn't sure exactly how the insurance score was calculated. So I looked around and found this interesting piece all about insurance scores. In short, the insurance score looks at many of the same factors that a credit score considers.
Since we have a great credit score, we also had a good insurance score (750). Thus we received the highest discount possible (44%). Just another example of how taking care of your credit score and managing your debt can save you a good amount of money.
My husband and I have exceptional credit scores, however, I think using your credit score for insurance discounts is bogus. We are actively trying to pay off all debt and will NOT be using any debt in the future (except for a possible mortage). Once all of our debt is eliminated, our credit score will drop drastically. How is it fair that because we were prudent with our finances that we get penalized on the cost of insurance? I think the use of a FICO score for insurance costs is ridiculous....
Posted by: Sarah | September 23, 2008 at 02:08 PM
Well, that's cool. My homeowner's insurance just came up for renewal, and in spite of our excellent credit score (both my wife and my score is over your 739 threshold), the rate was going up. I shopped around a little bit and dropped my premium by about 50%.
Posted by: Brian D | September 23, 2008 at 02:14 PM
Actually I don't find anything to be happy about with this news. It is another example of how we have allowed credit scoring to take over all aspects of our personal financial life. It won't be long before insurance companies convince Fair Isaac, Experian and others to include your insurance claims history as part of your overall "credit score." Why? To further intimidate policy owners against making claims. Eventually they will just change the name of the score to "consumer rating score." Sadly, we follow along like sheep and let it happen.
Perhaps one good thing that might flow from the current financial crisis is that people will re-focus on true metrics of financial stability, such as net worth and positive cash flow.
Posted by: Mr. ToughMoneyLove | September 23, 2008 at 02:17 PM
Sarah --
We've had no debt (not even a mortgage) other than credit cards (which we pay off every month) and have a great credit score.
Posted by: FMF | September 23, 2008 at 02:24 PM
I have not had a mortgage on my home since 1986 and no other loan (auto) outstanding since 1988. I have used credit cards but have always paid the full balance monthly----and have always qualified for the "Premier Discount" described above....So I don't see not having debt as an issue.
Posted by: PRW | September 23, 2008 at 02:24 PM
I also don't see having no debt as being an issue. I don't have a mortgage or any credit cards or car loans, etc. and my score is 801.
My question is, can we find out our score and get a discount without our insurance company notifying us of it first?
Posted by: LC | September 23, 2008 at 03:01 PM
Mind if I ask which insurance company this was with? For 44%, I'd seriously consider switching!
Posted by: Glen | September 23, 2008 at 04:03 PM
Glen --
AAA.
Posted by: FMF | September 23, 2008 at 04:15 PM
AAA of Michigan for me.
Posted by: prw | September 23, 2008 at 04:47 PM
Enjoy it while you can. If the State Supreme Court upholds the appellate court ruling, insurance discounts based on credit will be illegal in this state. Not sure how I feel about that. On the one hand, it does seem unfair. On the other, well, I get the discount.
Posted by: dcs | September 23, 2008 at 07:27 PM
I don't know the exact details, but I was trying to get a price quote from Progressive.com and found their quote to be about what I was paying with Farmer's insurance. But, I hadn't entered my SS# for security reasons. Later, I decided to try it wit my SS# and found the new quote was nearly half. I can only assume it was due to my credit rating. Now, I'm looking for a new home owner's insurance since Farmers jacked that up after I left them for car :(
Posted by: Mike B. | September 24, 2008 at 04:37 PM
Don't forget to check with Erie Insurance for car and home. They have annual premiums for car insurance, instead of semi-annual.
Posted by: Mark | November 06, 2008 at 04:01 PM
I have a FICO of about 630. My office mate has a FICO of 810. Our ages are about 4 years apart and our insurance claims history are identical (no auto/home claims for 5 years).
My insurance risk score is AA 04 and HH 06
His insurance risk score is AA 21 and HH 19
Those ratings are from one of the big insurance companies. There is another insurance risk profile called FARA and FACET used by an insurance company that a previous post references.
FICO 630 -- My FARA is a D (70% of base premium)
FICO 810 -- His FARA is a J (105% of base premium)
So, how does my lower credit score get me better insurance rates? Because insurance credit risk modeling is based on a different set of logarithms than is your FICO. To over-simplify the issue: people with credit cards are more likely to file a claim. Higher CC balances increases rate of claims. People with 2 car loans are more likely to file a claim. People with nothing but a mortgage loan are LESS likely to file a claim.
There are dark rooms in bomb-proof basements where people with no living family are working on super-secret formulas to rate your insurance. I'm exaggerating, but I'm sure they are closely guarded industry secrets that are protected from company to company. Shop around every 2-3 years.
Posted by: Eighth-1der | August 06, 2010 at 11:13 AM