27

Recently I received a letter from my home insurance company:

Thank you for being a Gore Mutual customer.

We're working hard to ensure that our products are competitive. And we want to provide you with the most accurate, personalized pricing possible. That's why we're introducing personal credit scoring with our property insurance products.

We would like to give you the opportunity to receive a discounted rate by providing us with your credit score. This type of soft credit check is 100% optional and will not impact your credit rating or alter your credit score. If you choose not to share your credit history with us, or if you share the information and your credit history isn't strong, we guarantee not to raise your rate or change your coverage. You just won't be eligible for the available discounts.

Rest assured, we'll never raise your rates because of your credit score. But it could help save you money!

The security of your information is our top priority. We have security measures in place to keep your inform safe and ensure that we're compliant with PIPEDA, BC PIPA and all credit reporting legislation.


The consent form says:

BY SIGNING BELOW, I AUTHORIZE Gore Mutual to collect, use and disclose personal information provided by me in order to obtain a consumer report (also known as a "personal credit report") from a consumer reporting agency; I ACKNOWLEDGE that the credit score will be used by Gore Mutual, along with other information I have provided, in connection with my personal property insurance for the purpose of:

  • Generating a premium for insurance
  • Determining my eligibility for a discount in the premium that will be charged for my personal property insurance

I, THE INSURED, UNDERSTAND that Gore Mutual cannot refuse to offer me an insurance policy on the basis of my refusal to consent to a credit check, however, if I do not provide my consent, I may not qualify for Gore Mutual's best rate.

I UNDERSTAND that my consent will be valid for as long as I have a policy in effect with Gore Mutual, unless withdrawn earlier.


I'm suspicious, though, of their rationale for offering a better rate for better credit scores. Insurance premiums are always paid in advance, so clearly they're not concerned about non-payment. Are they betting that rich clients can afford to absorb minor casualties and won't bother to make small claims? But then they would choose plans with higher deductibles, right? So what else could be the justification?

  • 9
    This part seems misleading: "Rest assured, we'll never raise your rates because of your credit score. But it could help save you money!"* -- so they won't raise your rate without the credit score but if you don't provide it, you'll be paying a higher rate than if you did provide it. – Johnny Jun 10 at 6:08
  • 5
    The cynical answer is that they've teemed-up with a company that wants to bombard you with credit-card or similar offers and will get a commission on referrals. – TripeHound Jun 10 at 6:54
  • 5
    "Are they betting that rich clients can afford to absorb minor casualties and won't bother to make small claims?" Not to pick at nits, but being rich and having a good credit score don't always go hand in hand. – dwizum Jun 10 at 14:56
  • 2
    @Johnny - so in other words it isn't misleading at all - it means just what it says and how you immediately interpreted it ... – davidbak Jun 10 at 15:43
  • 4
    @Johnny Also it may be that next year's "across-the-board rate increases for all customers" will be on the high side, about offsetting the discounts for those with good credit scores who opted in, and just a straight raise not offset for those who didn't. They'll still say "we'll never raise your rates because of your credit score" and that such an adjustment is compatible with such assurances, though in practice it's not. – WBT Jun 10 at 18:07
83

The simple answer is that their underwriting models show that customers with higher credit scores are less expensive to insure.

The general argument is that credit score is a reasonable proxy for responsibility, not wealth. Someone that religiously pays their bills on time is likely to be quick to address small maintenance issues rather than letting them fester and become major claims. Insurance companies would want to have a customer that, for example, notices that their back yard gets standing water after a storm and starts making sure that their sump pump is working, checking the basement for seepage, looking at landscaping options to improve runoff, etc. They don't want to have a customer that sees the same standing water but doesn't do anything until there are six inches of water in the basement. In general, someone that has a higher credit score is more likely to be responsible and address the issue proactively and to have the money to address the issue while it's small rather than waiting for disaster.

  • 7
    @nanoman - It wouldn't shock me in the future if you could get a discount by giving the insurance company information from sensors like you can today with car insurance by letting them monitor your driving. But smart home sensors are relatively new and not standardized and there are lots of things that sensors won't monitor. Plus, if you have to determine not just whether there was an insurable event and assess the damage but figure out whether the homeowner was partially responsible, you're setting yourself up for a lot of conflict. – Justin Cave Jun 10 at 1:59
  • 13
    @nanoman - (cont) There are too many bits of maintenance that someone could do or symptoms that someone could have noticed. Denying those claims would cause lots of homeowners to call up lots of government officials that would look unkindly on the insurance companies. Banks holding mortgages would also look very negatively at coverage that depended on the homeowner doing appropriate maintenance because the banks know that a borrower whose house sustains major damage that isn't covered by insurance is much less likely to keep paying the mortgage. – Justin Cave Jun 10 at 2:03
  • 2
    @nanoman the administration cost for this more complex insurance tiering needs to be less than the underwriting cost saved by insuring more "higher-tier" homeowners. You've already noted that not all claims where the homeowner has responsibility are the liability of the insurer, and clearly not all claims that do pass to the insurer are avoidable through responsible maintenance. The existence of the policy in the question only proves that one insurer believes the difference in underwriting cost is worth at least the cost of a credit check, which is tiny. – Will Jun 10 at 9:52
  • 2
    Simply put, there's already a cheap and easy to use framework in place to get someone's credit score. There is no such framework in place for smart home sensors capable of capturing data about maintenance practices. Plus, the credit score framework is owned and managed by third parties, while a system based on smart home sensors would be dependent on tech owned or managed at least partly by the consumer. – dwizum Jun 10 at 15:00
  • 12
    This is the flip side of "correlation does not imply causation". From the insurance company's perspective, it doesn't really matter why a high credit score implies lower cost-to-insure, as long as the correlation is there. – chepner Jun 10 at 17:53
14

This was discussed in an article in Consumer Reports in June 2017. The explanation given was that people with higher credit scores have the means and inclination to pay for issues out-of-pocket, rather than by making a claim.

But Alldredge says insurance companies wouldn’t use the scores if they weren’t useful in assessing risk.

“Maybe the person with a better credit score replaces the roof regularly rather than waiting for the next hail storm to require repair by the insurer,” he says.

Another CR article in July 2015 about car insurance also supports the notion that people with higher credit scores are less likely to file a claim:

But you might not even be aware that most car insurers use credit scores to determine how much of a premium you'll pay or that they rifle through your private credit report to cherry-pick 30 of 130 elements that they claim can predict a driver's likelihood of filing a claim.

There are many other CR articles on the subject, about once per year, with varying degrees of explanation.

  • Do you happen to have a link to the article? – WBT Jun 10 at 18:12
  • This seems likely - after all, if I'm going to get charged my $500 deductible, and my premiums are going to go up by a couple hundred annually, it's probably more worth my dollars to skip filing a claim and just eat the $1,000-2,000 in repairs anyway. Even if I have to pay a CC company $100 in insurance, I'm still better off. That's a (nasty) clever gamble. – Wayne Werner Jun 12 at 21:25
3

While the answer by Justin Cave sounds right, and shows the good side of the situation, there is another bad side which I would like to highlight. I have no way to know which side Gore Mutual is on, and I do not want to cast Doubt on them; I am merely listing some alternative Possibilities based on experiences in India.

  1. Now, Gore Mutual is going to get $X from you, and it wants to know your credit score so that it can voluntarily give you a discount and get only $(X-Y) from you. Unless you were comparing with other insurers and were asking for discounts from Gore, why would Gore voluntarily want to reduce your rate ? Gore must have some benefit. Nothing is free.

  2. While it says your score will not decide your Premium, the authorization letter says your score will be used for generating the Premium.
    "I ACKNOWLEDGE that the credit score will be used by Gore Mutual, .... for the purpose of: .... Generating a Premium for insurance ...."
    Can you get a rate before you give your score, and then you give your score and get a discount ? That way you know what discount you really get. Otherwise, your Premium may be the same with or without score. [ I say this because I have occasionally come across discount offers to members of some Indian malls. While billing, I do not mention my membership and the bill amount comes to X. I then give my membership number, the bill gets updated but the amount X remains unchanged ; Discount is mostly same for both members and nonmembers ]

  3. You are not just consenting for one time score check, you are consenting for long term score check.
    "my consent will be valid for as long as I have a policy in effect with Gore Mutual"
    Gore can track your score every month, unless you withdraw consent.
    Hence, on renewal, there may be no more discounts because Gore already knows your latest score and the Premium may generated on that basis.

  4. The letter talks about soft credit checks.
    "This type of soft credit check is 100% optional and will not impact your credit rating or alter your credit score."
    While it is true that a soft credit check does not impact the score, it does get recorded.
    Hence Gore can check whether insurance competitors have done the soft check earlier and if so, it can give you a discount to make it a better rate than those insurance competitors.
    If no insurance competitors are listed in your credit report, it can give you the regular rate, probably with a small discount.

  5. All information about customers can and will be used in profiling. Your monthly score is one more Data Set. Gore is stating that it is going to share your information with a consumer reporting agency, which in turn can share it with anybody else.
    "I AUTHORIZE Gore Mutual to collect, use and disclose personal information"
    Insurers and consumer rating agencies and credit agencies are going to share your information. I think this is a big benefit to business, to offer you loans, credit cards, investment deals and (who knows) scams.

Enough of the negativity !

If you are worried and do not mind paying a little more, reject the discount.
If you are feel comfortable sharing your score and would like to get a discount, then ask for a rate before you share the credit score, then share your score and get a discount on that rate, and then withdraw consent on the score until renewal.

EDIT: In comments, OP says it is not yet renewal time, in which case, it is not even necessary to authorize Gore now : Better to wait till renewal time; In the meanwhile, it might be good to contact Gore and ask about why the letter was sent now, when there is no renewal required.

  • In case it isn't clear from the question, I am an existing customer, so I already know what the undiscounted premium is. – 200_success Jun 10 at 14:11
  • 1
    @200_success , It is clear from the letter [ "Thank you for being a Gore Mutual customer." ] that you are a customer, but not the fact that you know the new undiscounted rate. Did Gore share the current "renewal" rate, or are you assuming that it is the same as last year ? Did you get any estimate on how much discount you may get ? – Prem Jun 10 at 14:36
  • 4
    "Gore is going to share your information with a consumer reporting agency, which in turn can share it with anybody else. Insurers and consumer rating agencies and credit agencies are going to share your information. I think this is a big benefit to business, to offer you loans..." That's not at all how it works. Businesses that obtain credit reports may only use that it in the manner that they're disclosing. Pricing and licensing of credit reports are based on intended use - a business can't pull a report to offer you a discount, and then share it as they please for marketing. – dwizum Jun 10 at 15:07
  • 4
    The only data Gore provides to the agency in order to obtain the report is identifying info on the consumer (name, TIN, etc). Further, Gore must disclose to the consumer the name of the agency they used, and they must provide a copy of the data they received from the agency upon request. Finally, the agency must act under consumer protection law when sharing any info they have on the consumer with any third party. Even if Gore had given the agency something they didn't already have, the agency cannot sell or share it without following regulation (which requires consent). – dwizum Jun 10 at 15:43
  • 4
    You are imagining things - or, at least, you're illegitimately projecting a valid concern onto a situation where it truly doesn't apply. Major insurers and credit agencies don't just ignore regulation on a whim - the "possible" badness you're warning of is not legitimate. I'm really not trying to be harsh or argumentative, and I understand you have good intentions, but I think it's important to be factual with things like this. – dwizum Jun 10 at 16:34
1

There doesn't have to be a reasonable explanation as to why customers with better credit scores cost less to insure. If they do (which can be demonstrated by calculating the average cost on a group of existing customers), it makes sense to the insurance company to make their policy cost less to attract more such lucrative customers.

0

It means your insurance is likely expensive. Unless you have a low credit score, in which case it is suitable... They are trying to split the field of clients and offer low fees to high credit scores, likely they have found a correlation. (I myself consider it dubious, since the reverse correlation makes sense. People who have had home related accidents, have low credit scores) But they are convinced it seems. Since the overall price is more than enough to cover the expense of giving rebates, the overall price must be too high. Get a 2nd offer and see.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.