Most Auto Insurers Rely on Consumers’ Credit Scores for Premiums

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  • Many consumers across the country saw their credit scores take potentially massive hits during and immediately following the recent economic downturn. And while that might have been problematic for them in many ways, one aspect of their lives which they may not have expected such difficulties to take a toll was when it comes to their auto insurance. However, it turns out that pretty much all major policy providers use consumers’ credit standings when determining their premiums. As such, agents may need to take the time to explain to those with more troubled borrowing histories why their rates are a little higher than they might have expected.

    One thing to keep in mind about the ways in which auto insurers use consumers’ credit ratings to determine their monthly coverage premiums is that it varies significantly from one state to the next, according to a new study from the personal finance site WalletHub. For instance, in Vermont, a person with a bad credit score will pay premiums only 18 percent greater than those with top-quality ratings. In Washington, D.C., that number explodes to 126 percent. Overall, though, the average low-credit driver in the average state will pay 65 percent more for auto insurance than the average high-score consumer. In all, four states plus the District of Columbia have differences of at least 100 percent. New Hampshire, meanwhile, has no law in place that makes auto insurance mandatory for drivers to have.

    How widespread is the use?
    Meanwhile, only three states in the entire country have no difference at all between the auto insurance premiums of those with excellent and bad credit: Massachusetts, Hawaii, and California, the report said. In fact, this kind of practice is so widespread that the major coverage provider that operates such controls in the fewest states still relies on consumers’ credit ratings in 42 of them.

    While no customers are going to be perfectly happy to accept higher rates as a result of something that has nothing to do with their driving record, those insurance agents who can better connect with them on other levels, and provide superior service, might still help them to see the value in their policies. Having strong relationships with clients is often the most important aspect of keeping them long-term, because it tends to improve satisfaction and loyalty.