Most people know that their credit history can help influence the decision if they get approved for a loan or not. Yet, some people do not realize that their credit score might decide what they will pay for their insurance. Some insurance companies will wait until after raising the rate to let their customers know that the price has increased.
This was the case for Michelle Cardin of Aliso Viejo, California. Her insurance company let her know that her premium was going to be increased by $511, based upon her most recent credit score. Ms. Cardin was quick to access her credit report from the internet and found out that her credit score had dropped from 678 to 570 in recent months.
This was the result of unpaid dental bills, since she had mistakenly let them go to collections. Regardless, the bills and collections had an effect on her credit and score and ultimately on her insurance prices. Not only did she have to pay her dental bills, she ended up paying a higher amount on her insurance premium.
The average credit score is between 600 and 650. This is seen as being fair and anything over 700 is definitely good. Although many people fall in between 300 and 850 points, 900 would be outstanding but in the minority of credit reports. So why exactly is your credit score important to your insurance company to determine your rates?
Customers are rewarded with lower premiums, based upon their risk and if they are less likely to acquire any losses. The easiest way to decide this is by looking at the credit scores that are reported. This will show how responsible you with your credit. Your credit score has a direct effect on your insurance premiums. Companies will use your report to decide how big of a risk you are and where to set your premium.
A recent study shows that approximately 90% of the top 100 automotive insurance companies look at credit scores when deciding on new policies. This process includes taking a look at bankruptcies, collections against your account, any judgments and of course delinquencies.
The companies will also take a look at your credit history and accounts you have, combined with the length and payments. The study shows a link between people who do not pay their bills and those who usually file an insurance claim. Companies can use this credit information of low credit scores to place customers at a risk.
Now more than ever automotive insurance companies are using consumer credit scores when quoting their rates. It is expected that home insurance companies will be quick to follow this process. Although this is something decided at the state level and that means that where you live will depend on what information the companies can get. Maryland and California are two states that do now allow insurance scores to be based upon the credit score.
It is a good reminder to work on your credit and get the negative points removed from your credit report. If you plan on getting auto insurance and would like to get low rates, this will only be to your benefit. You will be classified as either being high-risk, average or preferred.
Here a few things you can do to try and prevent low credit scores. Make sure you are paying your bills on time and keep them updated monthly. Have your accounts in order with the number, balances, credit limit and the due date. If you pay your bill as soon as you get them you might be able to deduct up to 100 points per default. You should try and charge only 1/3 of your credit limit.
If you can, try to stay away from any unnecessary credit and not apply for any extra credit cards. Finally, keep an eye on your credit report and try to get a copy at least once a year.
What is an insurance audit?
Policies are audited to ensure that the premium charged by the insurance company reflects their actual exposure, which was estimated at policy inception.
Insurance audits are performed by employees of the insurance company or independent auditors hired by the insurance company; in some cases forms will be sent to the business for a 'self audit' process. In all cases, the business must prepare information and utilize the time of its employees to respond to the audit. The level of personnel required varies based on the company's size. Personnel required might include the Office Manager, Accounting Manager, Controller or external CPAs. Data is collected and provided to the insurance auditor by the company personnel.
What is the auditor looking for?
Insurance companies audit certain Liability policies and ALL Workers' Compensation policies. The audits collect exposure information estimated when the policy was written and compares it to the actuals. This data is then used for determining and adjusting premium amounts. Information typically (though not exclusively) required includes the following:
* Liability Policies
Gross company sales
Independent contractor costs (insured and uninsured)
Payroll for certain types of exposures
* Workers' Compensation Policies
Actual employee payroll
Cost of independent contractors if no certificate or proof of other coverage is provided
This information may be in the form of payroll records, Federal Form 941, Financial Statements, Check Registers and Certificates of Insurance from contractors/vendors. A company's use of contractors can be determined by information disclosed in the financials or check register. Contractors/Vendors that do not have valid insurance certificates proving independent coverage will be added to the company's exposure totals. Not only do the possibly uninsured contractors/vendors increase a company's exposure to loss, they can also cause significant increases in their premiums.
What makes for a 'good audit' experience?
The main requirement for a 'good audit' experience is having all the information requested readily available for the auditor when they arrive on the premises. This includes easy access to contractor certificates of insurance demonstrating that the coverage is current and meets required limit levels. The upfront preparation and organization by the company can prevent ongoing audit responses and adjustments later on. Another 'good audit' experience is no surprises such as large premium adjustments, amounts due or returns after the audit is complete.
What makes for a 'bad audit' experience?
If the company cannot readily access the requested data, a variety of unwanted events can occur including:
Excessive waste of time for the auditor and company personnel
Company (Policy holder) gets a bill for a large additional premium for the audit period and next period
Company must immediately contact contractors requesting certificates and forward to auditor for premium adjustments, requiring significant time for both parties.
What are the potential consequences of a bad audit?
The results of a bad audit can be severe, especially if the audit resulted in additional premiums. Policies may be cancelled due to non-payment of the additional premium or for non-cooperation in the audit process. The company could have their credit affected. Staff will need to dedicate additional time to correct or adjust audit discrepancies, resulting in lost productivity and a disruption of the work routine. Some carriers may remove the company from being able to do an easy 'self audit' using forms.
How do you avoid a 'bad audit' experience?
Two words - be prepared. Understand what is auditable and what the audits are based on. Have the requested financial information available for the auditor. Present up-to-date insurance certificates for all vendors and contractors indicating limits meet requirements and coverage dates are current. Be sure the certificates are tracked and kept up to date. Implement some type of automated system that allows the company to track policy expirations and attach images of the insurance certificate to expedite the audit process and ensure premiums are not increased unnecessarily. Automated systems - notably insurance and vendor tracking software - are available on the market to help in this process.
To survive your insurance audit, make sure you know what the auditor wants in advance, collect and organize the information and be ready to find additional data quickly. Avoid the pitfalls and surprises of the 'bad audit' experience!
Both Christina Costa & Phyllis Recca are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Christina Costa has sinced written about articles on various topics from Home loans, Cars and Debt Reduction Consolidation. Christina Costa, a freelance credit repair writer, recommends Equotegrabber - where you can get a free credit repair anaylsis online in seconds!