More home-insurance companies are looking at your credit

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As South Florida property insurance rates climb this year, homeowners are paying more attention to everything that can affect their premiums.

More and more, that includes credit scores. A good score can lead to discounts. Customers with poor scores get no discount, and if they have poor scores and a history of filing claims, they’ll find fewer companies willing to compete for their business.

Most homeowner insurers in Florida don’t use credit checks, but a growing number do, including two of the largest — Heritage Property & Casualty and Universal Property & Casualty, covering one of every five houses in South Florida, according to documents the companies file with the state.

Others that use credit checks include Ark Royal, Florida Family, Olympus, Modern USA and American Traditions.

United Property and Casualty made credit scoring mandatory for its insurance applicants in 2015, documents show, while Sawgrass Mutual introduced it last year as well.

“More carriers are using it compared to 10 or 15 years ago,” said Jeff Grady, president and CEO of the Florida Association of Insurance Agents. “Agents accept it but don’t necessarily like it because they have to explain it to their clients.”

Cooper City resident Michelle Goldenberg said she received a renewal notice recently with a premium increase of nearly $1,000. Her agent suggested she might be able to lower that cost by allowing her insurer to run a credit check.

She declined, saying she was recently a victim of identity theft and hasn’t filed an insurance claim since after Hurricane Wilma a decade ago. “I said, ‘No way are you going to do a credit check so you can raise my rates again. If I’m able to pay off my house, I must be doing OK.'”

Credit-based insurance pricing has been controversial in Florida for at least a decade. In 2008, Kevin McCarty, then Florida’s insurance commissioner, called it unfair to minorities, poor people and the elderly and went to Washington, D.C., to urge a congressional committee to support a nationwide ban.

A 2015 study by Insurancequotes.com found that insurers in 46 states commonly used credit ratings to help set premiums, much like auto insurance companies have used them for years. Tying homeowner insurance premiums to credit is illegal in only three states: California, Maryland and Massachusetts. Florida was the only state where researchers found the practice was legal but credit scores had no impact on premiums.

State insurance officials said that result probably occurred because the researchers reviewed data samples from only six major insurers representing 60 percent to 70 percent of the state’s insurance market.

And those insurers probably didn’t use credit scoring because state law forbids using it to determine prices for hurricane insurance — the most expensive part of Florida policies,

About a month after the report was released, Heritage revealed it had initiated credit checks for its renewing voluntary customers, but not on customers it acquired from state-run Citizens Property Insurance Corp. through Citizens’ depopulation program. Rather than penalizing customers with low credit scores with higher rates, Heritage would use the scores to reward customers with good credit with discounts, the company announced.

Heritage turned to credit checks because “we weren’t competitive in many parts of the state,” president Rich Widdicombe said in a recent interview. “We said, ‘Let’s put credit scores on this and you get better customers and give those customers a discount.'”

Heritage and other insurers subscribe to services that combine credit scores with claims histories to form “insurance scores.” Widdicombe said last year that a low insurance score wouldn’t trigger a rate increase, but a low credit score combined with a history of filing claims might cause Heritage to reject an applicant altogether.

A majority of companies might have avoided using credit scores because they knew the state insurance commissioner opposed it, said Jay Neal, president and CEO of the Florida Association for Insurance Reform.

Companies that don’t use credit scoring include Citizens, Florida Peninsula, People’s Trust, Security First, Federated, Homeowner’s Choice and Tower Hill, state filings show.

But McCarty retired this year, and insurers might see that as an opportunity to reconsider credit scoring, Neal said.

As mounting losses from non-weather-related water damages trigger rate increases this year for multi-peril coverage, some insurers may be rethinking use of credit scoring to help weed out bad risks, said Jim Lynch, chief actuary for the Insurance Information Institute of America.

Whether companies call credit-based pricing a discount for customers with good credit scores or a surcharge for customers with bad credit scores, the bottom line is the same: People with good credit are rewarded and people with bad credit pay more, Lynch acknowledged.

But that’s fair, he said, and studies have found correlations between low credit scores and increased likelihood of filing claims. Just as data shows that auto insurance customers with low credit scores are greater crash risks, it’s logical that homeowners experiencing financial problems will be less likely to repair their leaking faucet — setting the stage for future claims, he said.

Using credit scores to help set prices for customers with different levels of risk is “one of the things an insurance company has to do — set rates that reflect risk,” he said.

Neal doesn’t buy that. “Credit scoring looks at one thing: credit,” he said. “Not the ability to pay, your income or your collateral. It doesn’t differentiate between someone who lost their income or someone who went on a credit card spending spree.”

Yet it’s the agent who’s forced to tell customers with low credit scores why a company is charging them more or won’t insure their homes, Grady said. “The agent feels like a heel when a person is charged a high rate and the agent is unable to give them an explanation,” Grady said.

Lee Goredetsky, president of L&S insurance in Fort Lauderdale, said some companies won’t write policies for customers with recent bankruptcies, short sales, foreclosures or other financial problems.

Credit scoring is more palatable when presented as possibly entitling customers to a discount, he said.

“When we give them their quote, their quote is their quote. It could get better, but it’s not going to get any worse,” he said.

More home-insurance companies are looking at your credit

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