After you fill out an insurance application and it is sent to an insurer, the
application is examined. The application is underwritten, meaning it is studied to see if
you qualify for coverage. The application answers are to questions used to fit the
qualifications set by each insurance company.
Typically an application is only the beginning. Insurance companies usually use other
important sources of information. For auto coverage, motor vehicle reports are ordered.
For home coverage, physical inspections may be conducted. An additional source of
information that is widely used for underwriting is credit scoring. Credit scoring is an
automated process where a consumer’s credit worthiness is measured and rated
according to a set of standards (such as amount of debt, number of credit cards held,
pattern of payments, etc.). The rating or score is used to determine whether the
individual qualifies for a loan. This credit evaluation is currently used by insurers as
an underwriting tool.
The same information used by lenders (especially for mortgages) has become a popular
underwriting tool. If your credit history, such as outstanding losses, bill payment
history and type of credit results in a high score, chances are you’re a good bet to
have your application for insurance approved. This is because, for some unexplained
reason, persons who have high credit scores tend not to cause as many losses. Insurers
have not provided details to explain why this strong relationship exists, they only rely
on the information to assist in granting or denying coverage. However, if a poor credit
score keeps you from getting insurance, you’re entitled to know. You can also get
information on how to follow-up to see if your credit information is accurate. The
Internet is full of sites that can give you a strategy for improving your credit
worthiness and enhance your ability to get insurance.
COPYRIGHT: Insurance Publishing Plus, Inc. 2002
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