In some states, Direct General does not use credit for rating. All of our other carriers use an insurance score as a rating factor to help determine a rate. The insurance score is based upon credit scores.
Not all insurance carriers check credit when a person purchases auto insurance so you may be able to find one in your area that would not check your credit history for the credit score as part of their rating process if Direct General cannot help you obtain the insurance policy that you need.
If insurance companies could find a rating variable that is more accurate than credit score, they would readily use it. Credit scores have been one of the best predictors of risk, therefore companies have adopted them as a rating factor.
The best thing to do is to shop around for insurance. You may find a company that does not check or you might find that using credit history, as a rating factor will still give you a competitive rate.
Each state's insurance regulator governs the amount that a credit score can affect your rates in some states. To find out if your state has regulations regarding auto insurance companies using your credit history as part of the rating process contact this state agency.
Even though most insurance companies do use a credit score as part of their rating factors it does not mean that your driving record is not taken into account. A good driving record with a poor credit score should get better rates then a person with a bad driving record and poor credit score. Driving record is always a factor in calculating an auto insurance rate.
The reason that many insurance companies use the credit score, or develop an insurance score which is a numerical ranking based on a person's credit history, is that actuarial studies have shown a direct correlation to risk as a good predictor of insurance claims. Insurance scores are thus used to help insurers differentiate between lower and higher insurance risks. Insurance providers charge a premium equal to the risk they are assuming. Statistically it has been found that drivers who have a poor insurance score are more likely to file a claim. However, the same argument can be made about a male or female, a zip code, a driving record, or even safety features. All of them are used to determine risk, but because a driver pays more or less because of it never correlates well. Being rated as a male and paying more, as a male does not mean you will cost an insurance company more, but that group or segment may cost the insurance company more.
Credit scores / insurance scores combined with other factors such as a person's driving record, age, gender, geographical location, accident and claims record give an insurer a clearer picture of how high of a risk a driver will be to them and thus enables them to price insurance policies more accurately. This means their rating system is set up so that people that are more likely to file a claim pay more than people who are less likely to file a claim.
The objective of an insurance carrier is to correlate rates for insurance policies as closely as possible with the actual cost of claims. The Federal Trade Commission (FTC) has done several years of research and determined that auto insurance companies' use of insurance credit scores leads to more accurate underwriting of policies. Their research backs up the belief that there is a correlation between insurance scores and the likelihood of filing a claim.
As we mentioned earlier states each have their own laws regarding how credit scores can be used in determining the cost of an insurance policy. For example in Oregon insurers doing business in the state must notify policyholders if use of their credit history results in an adverse decision and they may not use credit as a justification for canceling or non-renewing a homeowners or auto insurance policy.
And in Delaware as of January 1, 2008, DE auto and homeowner policyholders can ask insurance companies to recalculate their credit ratings once a year when their policies come up for renewal. If your credit has improved, you may see a benefit in your insurance rates. If your credit has worsened, your insurance rates will not be affected. This is part of a new law that now restricts the use of credit information by insurance companies in setting insurance rates. The law is preventing insurance companies from raising rates for existing customers based on their credit report or score.
When applying for insurance ask the agent or insurance company about whether and how credit information will be used in the underwriting and rating process. There is a good chance your current insurance company or prospective insurer will looking at your credit as one part of the total rating factors that are examined when determining rates.