White Paper: The Use of Credit Information in Personal Lines Insurance Underwriting
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JUNE 2003
Robert P. Hartwig, Ph.D., CPCU
Senior Vice President & Chief Economist
Claire Wilkinson
Director, Global Insurance Issues
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Introduction
Credit, and the ability to access it and manage it, is an integral part of everyday life. Today, credit records affect getting a job, finding a place to live, securing a loan, setting up telephone service and buying insurance. Most consumers benefit from the use of credit information because most people manage their debt well and therefore have good credit histories.
The use of credit information by the financial services industry has been widespread for a long time, and credit has become a key tool for insurers. Commercial insurers have for decades reviewed the credit history of businesses before issuing certain types of policies. One reason for this is that businesses in poor financial condition might tend to cut back on maintenance and safety, which may lead to more accidents, injuries and claims.
Home and auto insurers use credit information to produce an “insurance score” because it helps them to more accurately assess and price a risk. In conjunction with other information such as years of driving experience, previous accidents, the type of car or home, and where the driver lives and drives, credit-based insurance scores allow insurers to differentiate between lower and higher insurance risks. Many recent studies confirm the strong correlation between credit history and loss in both auto and homeowners insurance.
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