HOW ARE YOUR INSURANCE PREMIUMS CALCULATED?
Having practiced in the area of insurance law for over 30 years, with the experience of working both sides of the industry, I thought I fully knew how the insurance business worked, including how insurance premiums were calculated. I had always believed that some of the most important factors were driving record, age, mileage driven per year, and where you lived to name a few. I also had heard rumors throughout the years that your credit score could also factor into the process, but it was just that, a rumor.
I am probably dating myself here, but as Gomer Pyle used to say “Surprise, surprise, surprise”. Consumer Reports magazine (article link attached) recently completed a lengthy, extensive study on insurance rates, collecting over 2 billion price quotes from up to 19 car insurers including all of the standard carriers in each state for all 33,419 general zip codes and they determined that your credit score more than your driving record can result in you being charged more for your car insurance. The price data revealed that even people that had never had an accident could pay higher premiums if their credit score was not up to their insurance company’s credit score standards. Insurance companies create their own proprietary score that is different than your FICO score which they use to determine your car insurance premiums. They do not disclose this scoring formula either.
Also check the discounts that you are allegedly receiving for multiline coverage, multicar coverage, a security system, to name a few as you might not be saving as much as you think.
You will probably be just as shocked as I was to also learn that being a loyal customer who renews annually could actually result in you being charged more in premiums each year. Consumer Reports found that some notable insurance companies charge their loyal customers a “loyalty penalty”, hiking up their rates just for the mere fact that they were complacent and continued to renew their auto coverage with that company. Sounds crazy, doesn’t it?
I recommend you thoroughly read this article from Consumer Reports, then shop your coverage and ask the questions that are raised by this article. Thereafter, check your FICO score and get a copy of your credit report so that if there any errors on it you can try to correct them. It does not appear that insurance companies are going to refrain from using this information as an important factor in their calculation of your auto insurance coverage rates, so the best thing you can do is try to improve your score. Finally, if your company penalizes you for being a loyal customer and raises your rates just because of that fact, shop your coverage and move on to a different company. Remember, you are the consumer and can exercise some limited control over these tactics.