Home insurance score drastically decreases after car insurance claim?

Question

I noticed something very peculiar on my home insurance. My parents have horrible credit, so last year they purchased a van in my name, with a finance plan. A few months ago, my father was involved in a car accident where the car was totaled and insurance only covered 23,000 of the 25,000 due.

We went looking for a van and purchased the similar model in September, under my name again. paying the debt in full increased my credit score to roughly 748; funny thing is, my home insurance went from 839 to 863, but I’m assuming after the purchase of the van, significantly went down to 754, which is considered very poor.

I did not know that car insurance claims are tied to this, can anyone verify that this is the case, or was it the 2 hard inquiries from the car buying process? Could it be the fact that I’m taking on another loan of roughly 27,000 after paying a car debt of 25,000?

Not that I’m buying a home anytime soon, but I was just curious and thought I’d ask.

Answer 1

Credit risk and insurance risk are highly correlated for a single legal party. Trouble with one could indicate trouble with another.

Any increase in credit risk such as new borrowing will be perceived to be an increased likelihood of insurance risk, manifested as a fraudulent or subconsciously induced claim.

Any claim of insurance will be perceived to be an increased likelihood of default, manifested as a default, voluntary or not.

To a creditor/insurer, only the law applies; therefore, private arrangements between the borrower/insured and third parties do not factor because the creditor/insurer has no hope of recourse against such third parties in most places around the world.

Regardless of whether there is a price ceiling on compensation for damages to assets, limiting an insurers costs, if a risk is realized then it can be presumed through sequential sampling as well as other reliable statistical techniques that future risk has risen. The aforementioned risk dominoes subsequently fall.

Generally speaking, the lower one's financial variance, the lower the financial costs. In other words, uncertainty can be mostly quantified with variance and other mathematical moments as well. Any uncertainty is a cost to a producer thus a cost to the consumer. A consumer who is perfectly predictable with good outcomes will pay much lower costs on average than not, so one who keeps a tight financial ship, not exposing oneself to financial risks and better yet not realizing financial risks, will see less financial variance, thus will enjoy lower costs to financing, which includes insuring.