is it discrimination for an home owner's insurance company?

Question

to use your credit score as a price guide...after all your paying them and they arent lending you money..so what gives..how do the insurance companies know that the credit rating are accurate and what about mistakes on your credit rating ..thanks

Answer 1

It is not discrimination.

Insurance is a financial product. The rates are based on risk. The risk that you will incur a loss. The higher the risk the higher the premium.

There are statistics that show that those with poor credit and can't cover the mortgage anymore or get behind on bills are more likely to burn the house down or stage a theft loss.

Does that mean that all people with poor credit are bad people - no. But it goes back to the bad apples theory. Since there are statistics that prove that those with poor credit are more likely to have losses - they are a higher risk and they pay a higher premium.

The best thing to do is focus on your poor credit and work to pull your score up. One of the easiest ways to pull the score up, is to pay your bills on time. Just paying your bills late, can really really hurt your score. So make a point to pay all bills by the date due - even if all you can make is the minimum payment.

Answer 2

The rate doesn't increase because of credit issues. It just doesn't decrease. Everyone buying insurance starts at a standard. As your credit score suggests a better number, your rate begins to decrease. Therefore, definitely, someone with a higher score than you is going to get to take advantage of a lower rate.

Answer 3

I don't know if it is discrimination for homeowners insurance, but as far as credit report use for car insurance, trust me there is no correlation between credit rating and how bad a driver somebody is.

I've been a claim adjuster for 20+ years and wealthy people with supposedly good credit ratings can suck at driving just like some dude with a wife and three kids who filed bankruptcy.

This charging premium based on credit ratings is just another "revenue stream" for insurance companies. As competition from online insurance companies grew the other companies had to make up the money they were losing as their share of the market shrank. It's an idea they borrowed from credit card companies who will raise your interest rate if you are late paying somebody else.

The real bad guys in this tragedy is the states and their insurance commissioner offices that let insurance companies do this crap. I have yet to see any independent study that shows having a lower credit rating means you are a worse risk as a driver.

Answer 4

I work for a homeowners insurance company and it's perfectly legal for them to use your credit score as a basis for qualifying you. If you are a liability (i.e. don't pay your bills) then you are going to have a higher rate. I have been working in the insurance industry for over 10 years, and while most think it's very unfair, it's just the way it is.

Answer 5

I used to be against credit scoring, until I spent a few years in the business. There's something to be said for customers with good credit..they pay their bills!

For an interesting article on credit and insurance:
http://www.insuranceyak.com/ten-most-asked-question-insurance-and-credit-scoring/

This contains a link to an iii white paper on credit scoring.

As far as discrimination, as long as an insurer offers you some program at some price, you'd be hard-pressed to show discrimination.

Answer 6

There are statistical links between credit ratings and claims history. It is not discrimination it is good practice.

Answer 7

Nope, it sucks but it's not discrimination.
They probably figure if your financial life is a mess, you probably can't drive either. Who knows what their rationale is. People with bad credit pay twice the rates of someone with good credit.

Answer 8

It's not illegal. As far as mistakes, get your credit report and dispute the mistakes, before you apply for insurance.