Preapproved for Insurance

I got an odd letter in the mail today. Prudential notified me that I had been "preapproved" for auto insurance. The disclosure on the back made it clear that the term was being used quite loosely. Based on information from Trans Union, I met their initial qualifications, but any decision would be based on meeting their underwriting standards, etc., etc.

I can think of a few implications of this:

(1) Credit information is being used in situations where it is largely irrelevant. Using credit history as a proxy for character is a farce. The tiniest facts (or possibly lies) about your financial behavior are magnified beyond all proportion when major decisions like hiring or issuing insurance are based on them. There's already a better way to tell whether you're a good risk for auto insurance. It's called your driving record.

(2) Irrelevant credit information is usually used in a negative way, but apparently not in this case. This is a clear example of a positive offer being initiated on the basis of my credit record. Credit bureaus are still more than glorified blacklists, although that may not continue much longer.

(3) The "preapproved" label must be quite compelling if even insurance companies are using it. I know I have a slight weakness for preapproved offers, simply because I hate getting turned down. But I try to make sure that the term is being used properly before I apply. That means the familiar language: "based on an initial prescreening report obtained form a credit reporting agency..." or something similar to that. When anything else like a separate set of underwriting standards is added, it isn't really preapproved.

 

I have posted a couple message on this very topic. I moved to Washington DC from Indiana, and my credit was pulled several times in situations not requiring the granting of credit:

My job (to check my character I guess).
My insurance company.
My Bank (to open a checking account - huh?).
The phone company.
My landlord.
The electric company.

It seems to me that credit is being used as a character indicator. I wonder how many people lie, cheat and steal to pay their bills and maintain good credit records?

 

I don't get it though, insurance companies run credit checks on you. Well if you don;t pay your insurance payments then they cancel your insurance end of story, it is not like you are borrowing money from them. Sorry this just irritates me

 

Since I work in the insurance industry I am going to throw my two cents in here (actually it'll probably end up more like 25 cents). It is true that insurance companies run the risk of you not making your installment payments, but then again they aren't issuing credit. They simply cancel you when you don't pay. On the other hand, it is expensive for a company to do continuous cancellations and reinstatements on a customer because they continuously pay a day or two after the cancellation date.

Okay, all that having been said, the current trend of insurance companies using "credit scoring" in their underwriting is the biggest bunch of hogwash I have run across in the 15 years I've been in the industry. In reality it is nothing more than intrusiveness and snobbery. For as long as I have worked in insurance there has been a solid way for companies to work around the problem of customers who don't keep their insurance in force; that was to either deny coverage or charge more for coverage to those who did not have at least a year's continuous (no lapses) prior insurance when they began a policy. Those who did not meet this requirement had to go to high risk insurance companies, which charged more *because* they were high risk insurance companies.

Now, this situation still has not changed; you still need prior coverage to get into a preferred company, and you still have to go high risk if you have no prior insurance or if you have had lapses in coverage. The difference is that now your rate will be determined in large part by your credit score, totally aside from your insurance history. The problem I have with that is that your credit score is not necessary to determine your level of risk for not paying your premiums; your insurance history itself will reveal that. A customer who has maintained their insurance for years is not going to stop now, regardless of their credit score. A customer who has been cancelled and reinstated over and over is probably going to do the same thing, regardless of their credit score. Insurance companies, however, are run by snobs who believe everything about your life is their business.

By the way, it warms my heart to know that here in Arizona the small handful of insurance companies who have NOT resorted to credit scoring have experienced LOWER loss ratios than their credit-scoring competitors. Yesterday I spoke to an Allstate agent who was asking me to help a current client of hers find a new company. She'd had the client for 11 years with no lapses and no claims, but had to let the client go now because Allstate's new underwriting guidelines rate her credit as unacceptable. Smooth move for Allstate, huh?

Oh, and one more thing. To you who thought Progressive.com was "very nice" because they would give a ten-payment program to someone with bad credit: Don't be deceived. Progressive is anything but nice. They have been the main "push" behind this whole credit scoring movement, and if it weren't for them you would in all likelihood not have to go through the humiliation of haveing your credit run in order to buy insurance. And by the way, you can get at least a nine-installment plan with the majority of insurance companies, totally regardless of credit. I've personally never seen anyone be forced to pay in two payments every six months. If that's what Progressive told you, they lied, which is not rare. Just FYI.

Thanks for letting me vent, folks. I've been waiting for someone to notice this issue.

Always the wordy one,

MO

 

It would seem to me that people pay for life's necessities first (food, shelter, heat) for themselves and their families. Credit cards come last. It is VERY likely a person is on time with the rent every month because shelter is a priority over credit cards. So, in that instance, your argument is weak because a credit report wouldn't reflect that - it wouldn't be an accurate snapshot. A protential landlord only sees the missed credit card payments and not the on-time rent payments. If management companies reported monthly rental payments, then I would agree that landlords may have a right to check a person's credit report to llok at that RELAVANT information. But since they are not a credit grantor per se, they do not report payment habits. Turning on electricity is hardly extending credit - it is providing a service necessary to sustain life. I don't know what the solution would be, but I still believe that a person's credit report is not an indicator of how they'll pay for life's basics. I stand by my conviction that credit reports should be accessed by financial institutions only for the purpose of providing or extending additional credit.

 

very nicely said. I have been with State Farm for as long as I've been out of college (10 years). I currently have 4 policies with them. When I moved to a different state, they pulled my credit to underwrite at least one, if not all, of them. Not a problem for me, just slightly intrusive, a wasted inquiry and a slap in the face for a 10-year-old customer with 0 (zero, none, nadda, zilch) claims filed.