Will Your Collateral Remain Insured?
by BOL Guru Mary Beth Guard
Insurance companies are deciding that the way a consumer has handled credit may provide valuable insight into what kind of insurance risk the consumer will pose, and consumers are finding their rates hiked -- and in some cases their insurance cancelled -- based upon information contained in their credit reports. You, as lenders, may find yourselves adversely affected when the property you've taken as collateral is no longer insured, or when the borrower's ability to repay is negatively impacted by insurance costs.
The use of credit scores by insurers is rapidly gaining acceptance. A little searching on our part uncovered an online chart that lists the state laws that regulate the use of credit reports in insurance underwriting
Some consumers who have little credit history, preferring to generally pay cash for purchases, are finding themselves branded a bad credit risk and given higher insurance rates. Critics believe its bad public policy, and there are movements in some states to prohibit or limit the practice. For example, in Missouri, there has been a bill filed which would limit insurers from using credit scores as the sole reason for denying insurance coverage or raising insurance rates.
More Resources on the subject:
- Summary of state-by-state status on consumer-credit scoring legislation from NAII Feb. 12, 2002
- Article from the Dollar Stretcher - How Credit Bureau Reports Can Affect Your Insurance Premiums
- Article in SEATTLE POST-INTELLIGENCER regarding the cancellation of insurance due to bad credit report Oct 20, 2001
First published on BankersOnline.com 4/17/02
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