Until widespread use of vehicle telematics and usage-based insurance provides a reliable real-time stream of customer driving information, insurance companies in Ontario are going to have to rely on old tried and true method for determining a customer's risk profile. An educated guess, based on proxies like age, gender, type of car and so on as has been the case for several years.
Drivers – customers expect their insurance companies to charge insurance premiums according to the risk and good risk customers do not want to subsidize bad risk customers.
One of the most accurate and powerful indicators of risk is the way that a customer – driver manages their own personal finances. There is a large body of research linking credit behavior to claim losses.
In 2003 a Texas Department of insurance study, looked at data for 2 million policyholders. It found that automobile insurance customers with the lowest credit scores had car and vehicle claim losses that were 53% higher than the expected average, while those with the highest credit scores had vehicle claim losses on insurance at 25% lower than the expected average.
While there has been no direct study of research done here in Ontario, barons insurance services has conducted a like survey for Canada that used solely Canadian insurance data and found the same strong relationship between credit score and vehicle insurance losses.
Given this evidence to support this notion, it's not surprising that most insurance companies in Ontario would prefer to use credit scores to allow them to measure and assess risk of a driver – customer. Why then is the use of credit information in auto insurance still controversial?
Credit score evaluation for automobile insurance in Ontario with focus on the consumer's credit behavior. Consumers who manage their finances well by paying their bills on time and who don't abuse their access to credit will have a high score, regardless of how much or how little money they make it income. People who manage their finances while tend to also manage other important aspects of their lives responsibly. This includes properly maintaining and driving a vehicle and keeping house in good repair, which, in turn, will generally result in fewer and or less costly car insurance claims. Even consumers who have a low credit score can take steps to improve their credit rating and consequently reduce their car insurance premiums.
In the final analysis, the strongest argument supporting the use of credit information to determine level of risk for a automobile insurance request is that it is fair. That credit history of a driver is one of the variables over which a consumer has control and leverage to reduce the cost of their auto insurance premiums.
Automobile insurance is an expensive product. All of us in the industry should be using every tool available that can help us to better match premiums of insurance with levels of risk, thus reducing the cost for the majority of our consumers. That includes the appropriate use of credit information.
Drivers – customers expect their insurance companies to charge insurance premiums according to the risk and good risk customers do not want to subsidize bad risk customers.
One of the most accurate and powerful indicators of risk is the way that a customer – driver manages their own personal finances. There is a large body of research linking credit behavior to claim losses.
In 2003 a Texas Department of insurance study, looked at data for 2 million policyholders. It found that automobile insurance customers with the lowest credit scores had car and vehicle claim losses that were 53% higher than the expected average, while those with the highest credit scores had vehicle claim losses on insurance at 25% lower than the expected average.
While there has been no direct study of research done here in Ontario, barons insurance services has conducted a like survey for Canada that used solely Canadian insurance data and found the same strong relationship between credit score and vehicle insurance losses.
Given this evidence to support this notion, it's not surprising that most insurance companies in Ontario would prefer to use credit scores to allow them to measure and assess risk of a driver – customer. Why then is the use of credit information in auto insurance still controversial?
Credit score evaluation for automobile insurance in Ontario with focus on the consumer's credit behavior. Consumers who manage their finances well by paying their bills on time and who don't abuse their access to credit will have a high score, regardless of how much or how little money they make it income. People who manage their finances while tend to also manage other important aspects of their lives responsibly. This includes properly maintaining and driving a vehicle and keeping house in good repair, which, in turn, will generally result in fewer and or less costly car insurance claims. Even consumers who have a low credit score can take steps to improve their credit rating and consequently reduce their car insurance premiums.
In the final analysis, the strongest argument supporting the use of credit information to determine level of risk for a automobile insurance request is that it is fair. That credit history of a driver is one of the variables over which a consumer has control and leverage to reduce the cost of their auto insurance premiums.
Automobile insurance is an expensive product. All of us in the industry should be using every tool available that can help us to better match premiums of insurance with levels of risk, thus reducing the cost for the majority of our consumers. That includes the appropriate use of credit information.