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Monday, October 5th, 2009
Credit is factor in insurance
(The Arizona Republic) Credit issues are in the news these days, and that means insurance can’t be far behind.
It’s common knowledge that credit scores affect consumers’ ability to obtain loans and the interest rates they pay. But scores also help to set premiums for homeowners and auto insurance in Arizona and most other states.
Credit scores are grades that reflect a person’s ability to manage debts over time, based on information in credit reports.
The use of scoring is controversial, but insurers defend the practice. “Numerous studies have determined there is a strong relationship between credit-based insurance scores and risk of loss,” wrote Ron Williams, executive director of the Arizona Insurance Council, in a commentary. “Higher-risk individuals will pay more for auto- and home-insurance coverages (and) lower-risk individuals will pay less.”
Other information such as prior losses and driving records also are used to price policies, but insurers say credit scores provide a clearer picture, helping to set rates more accurately and making coverage more widespread and affordable.
Certain protections exist in Arizona for consumers who are denied credit or who must pay higher premiums because of scoring, Williams noted. For example, insurers must reveal the source of the adverse credit item and tell consumers how to get a copy.
Also, insurers can’t include various types of credit information, according to Williams. These include collection accounts tied to medical debts as well as bankruptcies or liens more than seven years old.