Post Update August 4, 2012 – Did you know a good driving record does not always guarantee you good Ohio auto insurance rates? It’s true. For some time now, Ohio Auto insurance companies have adopted the practice of using an individual’s credit rating as a underwriting factor when it comes to writing and issuing Ohio auto insurance Rates and Ohio homeowners policy rates for their customers. Auto and Homeowners Insurance Carriers feel that credit is a strong predictor of both present and future risk and therefore, persons who have a poor credit rating should be charged higher Ohio Auto Insurance and Homeowners Insurance premiums – compared to persons with a better credit rating should be provided with a lower premium. The practice is working very well.
Why Your Credit Rating Affects Your Ohio Auto Insurance Rates
Many Ohio Auto Insurance Rates buyers feel the practice of underwriting an insurance policy using ones payment habits is unfair. These folks state having a neither good nor poor credit rating will determine if a person will or will not have an automobile accident or file a theft claim on their Homeowners/Renters Policy. Unfortunately, there is no escaping the fact that a majority of Ohio auto insurance and homeowners insurance carriers have adopted the practice of using credit ratings for underwriting purposes. The best option for Auto and Homeowners Insurance shoppers is to come to terms with this reality and do their best to support their credit worthiness.
Today’s Blog discussion takes a look at the sweeping practice among carriers, that of using credit ratings to determine ones premiums for both Ohio auto insurance and homeowner insurance is here to stay.
Credit Worthiness or a credit rating can be defined as a reflector of one’s ability and or willingness to repay a loan or make monthly payments on a purchase. These credit reports are created by several credit reporting agencies in the U.S. which outlines the credit worthiness of a person. Insurance companies normally look to credit reporting agencies to provide this person’s credit record. The credit record of an individual can contain several factors including loans owed, pending bills, court judgments and bankruptcy filings.
Credit Reporting Agencies vary in the way they calculate the credit rating of a person thus each uses a combination of different factors and approaches to calculating one’s credit score. This means that an individual’s score will vary across each credit agency. Even so, the factors mentioned above are what insurance carriers look to as a predictor of future behavior and in many cases show the likelihood of claims behavior. These predictors or credit scores will result in both lower and higher premiums for that insurance buyer.
There is always a good and a bad side to everything in life and Ohio Auto insurance and Homeowners carriers using credit rating to decide premiums and insurance risks is no exception. To begin, one of the positive aspects of using credit rating to determine person’s insurance premiums can in a nutshell be described as risk aversion. Finances in the view of Ohio auto insurance companies are probably the most important aspects of life and their feeling is that if people cannot manage their finances how can they be expected to manage their homes, cars and driving habits. Thus Auto and Home Insurance companies feel that one’s credit rating is a big predictor of future insurance risk on the home front and charging higher premiums is a way to avert risk on the carrier front. Another positive aspect of insurance companies using credit ratings to issue insurance is, the premium differential falls more on each policy holder. Insurance especially for cars is a statutory need. With many Auto and Homeowners insurance companies adopting this underwriting practice, customers are being forced to re-strategize especially in terms of managing their credit. Insurance shoppers weary of having to pay high premiums for their home and OhioAuto insurance are starting to take better care of their finances. So in some ways, this underwriting practice is helping persons develop sound financial practices to the best of their abilities.
There is the flip side however and despite the positive aspects of this underwriting practice, there are negative ones. One of the negative aspects is competition especially among carriers. Despite the OH auto insurance rates and homeowners insurance carriers have adopted the policy of using one’s credit rating in issuing auto and homeowners insurance, not all insurance carriers have done so. This means competition among the carriers as some customers will tend to lean towards carriers which do not penalize them on the basis of their credit reports. Additionally, even the carriers who use credit ratings to determine insurance premiums have varying methods of calculations and therefore a customer can shop for the best rates. Thus, this method has been a source of high Insurance competition among carriers and while some carriers are gaining business, others are losing out. Another negative aspect is on the side of the customer or insurance seeker. Customers feel that this underwriting practice makes it even more difficult for persons who are struggling financially. The economy in most parts is on the downward slope and as a result, payment defaults, high debt and bankruptcy has become more common especially so for the working class. The working class is already dealing with an increased financial struggle during this economy. Having to deal with paying increased insurance premiums because of a bad credit rating just puts them behind even more. With that said, some auto insurance and homeowners insurance carriers have considered the current economic situation. One positive area which has been addressed is cancellations. Instead of flat canceling a policy for non-payment, some auto and home insurance carriers are allowing up to 30 days after a policy cancels to make a payment to continue their coverage.
The practice of auto insurance and homeowners insurance companies using your credit rating to determine a future insurance risk have been around for a while and quite likely will remain for years to come. Even with more Ohio Auto insurance companies adopting this underwriting practice, the pros and cons are there, and careful consideration of each side of the coin has been given. In essence, insurance carriers have sought to strike a balance that satisfies both themselves and those insurance shoppers – especially so in light of these economically hard times.
Recently; our agency contracted with a number of new auto insurance carriers. These carriers field underwrite their insurance policies completely based on past driving record and age of the driver. They do not incorporate credit in the underwriting process. If you do have previous credit issues which you feel may hinder you obtaining a better rate, be sure to share this. Our agents are here to help you obtain the best rate possible on the type of insurance you need. Knowing as much as possible about your particular situation will help us help you accomplish this goal.
Michael E. Dortch
President & Managing Agent
Corporate Home Office
618 South Broad Street
Lansdale, Pennsylvania 19446