Yes. The Fair Credit Reporting Act (FCRA) allows for insurers to obtain credit reports in connection with insurance underwriting. Fortunately, the FCRA also allows States to enact legislation the provides greater consumer protection than the FCRA can provide and some States have set restrictions as to the use of insurance credit scoring. If you are in Hawaii, it is illegal.

If your policy is affected by your credit in any way, the insurer is REQUIRED to notify you as per the FCRA. This notification must include the reasons for the increase, the consumer reporting agency from which the information was obtained and a way to get that information.

If you believe your policy was impacted by your credit and you did not receive an adverse action letter, pull copies of your credit reports to see if the insurer is listed as making an inquiry and then file a complaint with your Department of Insurance.

FYI- If your insurance company requests a Social Security number then you probably were credit scored.

How can I have a credit score of 720 and still not qualify for the lowest rates?

Because "lending" credit scores are calculated differently than "insurance" credit scores. Insurance credit scoring is not the difference between good credit and bad  credit, it is better defined as the "right" credit or the "wrong" credit.

This is known as a credit "bait and switch" tactic. You are forced to pay the higher premiums or attempt to find other coverage while the new company keeps the down payment for the policy you do not want. If this has happened to you, I encourage you to file a complaint with your Department of Insurance.

There is no difference.

Again, this goes back to the Studies. Insurance companies believe that certain credit characteristics are indicative of insurance losses. This is an unproven theory.

Comprehensive Underwriting Loss Exchange  A CLUE report is a listing of damage and or claims paid to you or for you by the insurance company. This report may also list any claims that were not  formally filed, settled and/or adjudicated. You can dispute the information contained in the CLUE  reports.

To dispute a loss record, call or write them at:

ChoicePoint Consumer Center
P.O. Box 105108
Atlanta, Georgia 30348-5108
 www.consumerdisclosure.com
1-866-718-7684

Be sure to include in the dispute:

• the C.L.U.E. reference or consumer number
• the name of the insurance company 
• the date of the loss
• a brief explanation of the facts 

As with credit reports, the information will be verified with the reporting insurance company and they will notify you of the results within 30 days.

Q.  Who  wanted this study and why? Who would they have thought that credit and 
      claims correlate?

A.   See one theory here.

Obviously, this practice has proven to be quite profitable. "A few years ago, after the Arizona state Senate had passed a bill prohibiting insurers� use of credit scoring, the National Association of Independent Insurers (an industry trade association) and Progressive sent out hundreds of thousands of letters to consumers telling them that their insurance rates would go up if the state House of Representatives concurred with the Senate. The bill did not pass." ²

As a matter of fact, the Insurance Industry ranks first in lobbying expenditures  ($77,206,908.00) and campaign contributions ($31,223,078.00) in 1998. (Last data assembled.) In case you are interested, the Republicans received 70% and the Democrats received 30%.

Add these amounts to the high cost of leasing scoring models and running credit reports and you can see why premiums are rising. Using Insurance Credit Scoring is simply adding cost to the bottom line and the insurance industry want to make sure you cover those costs.

So why is the insurance industry fighting this so fiercely? For one theory, click here.

A. Credit scoring has been used for years in insurance underwriting as one of the permissible purposes as defined by the Fair Credit Reporting Act. But the reasoning goes deeper than that. Insurance companies, like consumers, have done very well with their investments (yes, they invest your premiums) for years. Last year, like many consumers, the insurance companies lost significant amounts of money in the market. Now the insurance industry sees premiums as the key to profitability. Stocks go down, premiums go up. So they, unlike consumers, have a way to make up their losses and it appears they are using an unfair trade practice to do so. See why in Industry Vs. Consumer.

A. Scoring models not only provide insurance credit scores but underwriting, retention, cross selling, claims handling, prospect targeting and collections as well. Credit reports may be a valuable commodity not just for the purpose of determining rates.
See Industry vs. Consumer II.

A. They run both credit reports.  Do they take a combined amount? An agent's answer?
 "I don't know, I am receiving conflicting answers from home office."

A. Received an answer on this one:

Insurance rating is entirely for the purpose of trying to match expected claim costs with premiums paid.  Accident surcharges exist within the rating system because people who have accident histories are more likely to have future accidents.  Therefore their insurance premiums should be higher in the future than those who are less likely to have future accidents.  Surcharges do NOT recoup past losses. This would be called retrospective rating. Auto insurance is rated prospectively, not retrospectively. Past losses are paid for by the premiums of people who didn't have accidents during that same time period.  The rating system is built for the sole reason of estimating  a given person's future likelihood
of having an accident, and generating a premium that matches the risk level.

Comments or questions?

Interesting quote in the Journal of Insurance Regulation published by the National Association of Insurance Commissioners (NAIC) in 1989:

"As a further consideration, prices presumably set to cover the cost of accidents cannot be surcharged when an accident occurs without calling into question the correctness of the original price. Simply expressed: Aren't accidents what premiums are supposed to pay for".

 "There is a question of propriety with respect to penalizing an insured for the very occurrence for which he purchased insurance... Questions may arise as the soundness of penalizing such an insured when he is unfortunate enough to have the accident for which he is insured against" - J. Lemaire, Automobile Insurance, 1985.

Submit your questions here.