It might seem out of the ordinary for your insurance broker to ask you to submit a credit check. You’re not applying for a car loan or a mortgage, so why are they asking? Still, something about the words ‘credit check’ gives us all the chills.
In this case, it’s about the industry’s ability to predict claim patterns in specific demographics. It’s a good idea to allow your broker to process a soft credit check, as it could save you a great deal on your premiums.
Here’s how it works, insurance premiums are always based on claims history. Not just your history but everyone’s history. Insurance companies have departments of actuaries who gauge risk and forecast trends using large amounts of related data and computer modeling. One interesting fact that actuaries have discovered is that individuals with higher credit scores make fewer insurance claims.
The logic behind this is that people with good credit are more likely to have the financial means to complete any necessary home upgrades. This demographic has also shown to be less likely to exaggerate claims or commit outright fraud due to a dire financial situation.
The insurance industry takes this feedback from the actuaries and reflects it in their coverage rates. What this means to you is that if you have a higher credit score, you are eligible for a lower insurance rate.
Here are a few important things to remember about the process:
- The credit check that your broker asks for is a ‘soft check’; your credit score is not affected.
- Your broker can’t see your score; computers automatically crunch all the numbers and apply your discount.
- If your credit score isn’t great, your premiums won’t increase; they’ll stay the same.
- No insurance company can deny you a policy because of your credit score.
- Your policy will never be canceled due to a low credit score.
If you are concerned about a credit check being performed by an insurance agency, visit the Insurance Bureau of Canada for more details, as this is heavily regulated and it’s serious business.
Some of our markets have credit discounts that reduce your insurance by more than 20%. We recommend that you say ‘yes’ to the credit check, and we hope this article has helped you to understand why. We want to get you the best rates possible, and this is a great way to accomplish that.