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A Better Way to Lower Your Insurance Rates

October 9, 2018

More than a dozen states this year considered legislation that would have limited how insurance companies use your credit history in helping them set premiums.

lower your insurance rates
CCIG President and COO T. Scott Kennedy.

Consumer groups were disappointed because none of those efforts passed, although two states, Alaska and Vermont, took a different approach that made both consumers and insurers happy.

Using a model provided by the National Council of Insurance Legislators, lawmakers in these two states adopted legislation that allows people to apply for “extraordinary life circumstance” exceptions to the use of credit information. Now, anyone going through a serious illness, death in the family, divorce, loss of employment or military deployment, among other issues, can apply for an exception when they renew their policies.

At the same time, insurers in those states can continue to use credit-based insurance scores in determining rates.

Thanks to advances in technology, I think there’s a better way to do all of this, but let’s come back to that in a bit.

It’s important to note that insurance credit scores are similar to but not the same thing as credit scores used by lenders.

While they look at your payment history and account balances, insurers, most significantly, never consider income. They also are barred by law from using race, gender, address, ethnicity, religion, marital status or nationality as factors in coming up with your score.

Instead, if you’re buying auto insurance, for example, they look at your driving record, age or driving experience, type of vehicle, vehicle use, and geographic location to calculate your rate, along with your credit history.

Insurers use these scores to predict the potential for insurance loss, while credit card companies and other lenders use credit scores to determine the availability, amount and price of their products (the interest you pay), as well as the likelihood you’ll repay your debt.

In any case, insurers use these scores because they help them predict how likely you are to have an accident or covered loss. Indeed, numerous studies have shown that consumers with good credit file fewer insurance claims.

But there’s a better way to manage this question, one that insurers are beginning to embrace, especially in Europe.

It’s called telematics, and you may have read about it here. By combining a GPS system with on-board diagnostics, it’s now possible to record exactly where a car is, how fast it’s traveling and how hard it’s braking.

Telematics, in other words, builds a picture of your driving style. That picture, in turn, helps the insurance company set your premium.

Yes, of course, all of this does sound Orwellian. But it’s helping to create a fairer pricing system based on exactly what it should: an individual’s driving habits, not their holiday shopping sprees.

Scott Kennedy, president and COO of CCIG, has more than 30 years of insurance and risk management experience.

CCIG is a Denver-area insurance broker with the full-service capabilities of a national brokerage. We do more than make sure you have the right business or personal insurance policy. We help you manage your long-term cost of risk with our risk and claims management expertise and a commitment to service excellence.

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