Use Of Credit Scores By Insurers Essay Example | Topics and Well Written Essays - 750 words

Use Of Credit Scores By Insurers - Essay Example Rates and premiums are calculated on the basis of your risk level. Many insurers estimate the amount you stand to collect as premium in the event of a loss and charge you a premium amount enough to compensate such claims. If your insurance claims equate to average compared to the credit score, insurers still price the premiums in a manner that profit is earned. Other than the credit history, other factors help in underwriting and pricing of insurance. Some of the factors include the driving history, area of residence, age, gender work history among others. Taking into account all these factors while pricing an insurance cover could be a fair deal. However, consumers should have a better reason to make their credit history healthy. This will better your chances of landing favorable insurance rates and policies. To determine whether or not to offer auto insurance coverage to an individual, insurers often rely on an individual's credit information. Many insurers argue that this informat ion is appropriate in evaluating the possible risks and thereby charging the correct premiums to their clients. However, many states castoff this approach from being used as the sole foundation for cumulating rates, denying, renewing or canceling premiums policies for their clients. Some states forbid the use of these scores in rating premiums and making underwriting decisions. Others require that insurers should inform their clients and applicants of the decisions made while determining their premium in relation to their credit history.