Use of credit score data can help provide more tailored insurance pricing

By Wayne F. Pryor,
VFBF President

While I’ve been involved with the farming-related aspects of Farm Bureau most of my adult life, I’m also no stranger to Farm Bureau insurance. In addition to farming, my father was a Farm Bureau agent.

His insurance customers were our neighbors and other members of our community, and he did not take lightly the trust they placed in him and in Farm Bureau when they purchased a policy.

That trust is something our insurance staff will never take for granted. We are aware that consumers have many insurance options available to them today, and we’re honored that many of our members have made a decision to insure their homes, farms and vehicles through Farm Bureau. We also believe our members and policyholders deserve clear and timely information on practices that have an impact on their insurance premiums.

The use of credit-based insurance scores is a process that’s been employed in the insurance industry for several years. Insurance companies use financial history along with other factors—such as years of driving experience—to underwrite applicants at a cost that’s better tailored to each individual. Industry studies have shown a correlation between a consumer’s financial history and the potential risk he or she might represent to an insurer.

Virginia Farm Bureau Insurance has used credit-based insurance scoring to determine acceptability of the risks it insures since 1999. In 2008 the insurance company will begin using credit-based insurance scoring to improve the pricing structure of personal auto insurance premiums.

Most insurance companies already use insurance scoring. In order for Virginia Farm Bureau to offer competitively priced products for our members, we must incorporate this new rating variable into our pricing structure.

While some people might worry that the new calculations will cause their premiums to increase, many policyholders’ premiums actually will decrease.

What information is being used—and how?

Your credit report contains a great deal of information, not all of which is used in determining insurance risk. And it is not quite the same information that would be reviewed if you were applying to a financial institution for a loan.

A credit-based insurance score is a statistical analysis of a consumer’s likelihood of filing a claim within a given period of time in the future. Using statistical programs, a consumer’s credit information is compared to the performance of consumers with similar profiles, and a scoring system awards or subtracts points for various factors or variables.

Variables considered include outstanding debt, length of credit history, late payments, new applications for credit, types of credit used, payment patterns, available credit and past-due amounts.

Information that is not considered includes age, gender, race, national origin, marital status, address, salary, disability, occupation, employer and employment history. Other variables that, by law, may not be considered, are disregarded as well.

Financially conscientious consumers have always known that their credit records affect numerous aspects of their lives. Credit-based insurance scores are designed to benefit consumers with stronger financial backgrounds by rewarding them with lower premiums.

We all can improve our insurance scores over time by using credit responsibly. It’s also a good idea to periodically obtain a copy of your credit report from credit bureaus to check for inaccuracies. Everyone’s financial responsibility ultimately will lead to better insurance rates.

Wayne F. Pryor, a Goochland County beef and grain producer, is president of Virginia Farm Bureau.