10.10.06

Do you have a Clue how your credit score affects the insurance premium on your house?

Posted in Money and Finance at 5:24 pm by Jeanne

Over the last few years, over 600 companies, covering the vast majority of insurance underwriters in the U.S., have been contributing information to an entity referred to as CLUE, an acronym for the Comprehensive Loss Underwriting Exchange.  Under CLUE, information relating to claims history is shared in a database, and the past credit history of a client is used to predict the likelihood of future claims.
The concept is somewhat similar to a FICO score, where mortgage lenders review the history of clients to see if they use credit wisely, and make their payments on time. The idea is that someone who consistently makes credit card and utility payments on time, will likely be a good candidate to make mortgage payments on time. Conversely, it would make sense that someone who consistently turns in claims on their homeowner’s policy for lost items, damaged trees in the yard, blown off doors, etc., might continue to do so.
The question is, does an insurance company have an obligation to inform the customer that their poor credit score is impacting their premium, and perhaps their ability to obtain insurance? The insurers say no, a person is responsible for his or her own credit score; but recent lawsuits have claimed the insurers are guilty of violating the Fair Credit Reporting Act (FCRA.) The FCRA requires a notice to the consumer when the consumer is adversely affected based on credit information. If a consumer shows that a user’s failure to send an adverse action notice was negligent, the consumer is entitled to recover actual damages. However, if the court believes that failure to send a notice was “willful,” consumers could be entitled to recover both statutory damages and punitive damages.
The U.S. Supreme Court has agreed to hear oral arguments on insurers’ use of credit reports, based on appeals by Safeco Insurance Co., GEICO General Insurance Co. and friend of the court briefs.. The Supreme Court combined two cases,  Safeco Insurance v. Burr, 06-84 and GEICO General Insurance v. Edo, 06-100 when it agreed to hear oral arguments.
 

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