Insurers Set Premiums Based on Consumer Credit History

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Insurers Set Premiums Based on Consumer Credit History

Category : Insurance

Its not an uncommon practice for organizations that are going to lend money to an individual to look into their consumer credit history, but the idea of someone offering or denying insurance based on your credit score is becoming more common. The central idea behind the research by insurance companies is that they can identify individuals with certain credit scores and predict their likelihood of filing an insurance claim. The more likely an individual is to file insurance claims, the more likely these insurance companies want to deny them coverage.

The practice of reviewing credit scores by insurance companies is not popular and is even drawing attention from Congress. The practice of credit review is being watched closely and you can expect that action will be made by the federal government the moment they feel the insurance companies have crossed the line.

Congress isn’t the only government organization with oversight into insurance activities related to an individuals credit score. In fact, over 48 states regulate and govern the use of credit scores by insurance organizations. But the laws in these states say that credit score alone can not be the deciding factor on if someone should be offered insurance or denied coverage.

Employers Check Credit Score

While the practice is becoming more common for insurance companies, its not unheard of for employers to also check the credit scores of employees or potential employees. In fact, it is believe that almost half of all US employers engage in such activity. This type of activity is being closely reviewed also as some believe the credit check is being used to assist in discrimination against minority groups.

Additionally, the fact that many credit reports have errors or reflect activities of a different individual could cost someone a job. This type of practice is very risky and can be difficult to prove. Employers themselves need to be careful of how they use the information they’ve requested about employees and potential employees financial situation.

Governmental Action

As the insurance topic continues to gain ground amongst government groups and the public becomes more aware of the implications a bad credit score may have on insurance, we expect to see new bills and policies created to govern the practice. It is a matter of time before someone does step over the line and start using credit scores inappropriately. Many wouldn’t be surprised if the overall practice of using credit to decide on whether to offer insurance or extend a new job be outlawed.

What do you think about this type of practice? Has it ever been used against you in your insurance needs?


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