Workings of the insurance industry and the calculation of Insurance premium today is shrouded in complete mystery. Incorporating usage of credit scores to calculate insurance premium will lead to more transparency and bring greater accountability on part of the companies.
Insurance companies operate in a complete black hole – few people have clarity on how they work. There is a necessity for transparency and clarity in the way they operate and work out their annual premiums. Lack of transparency/affordability leads to many individuals opting out of insurance much to the detriment of individuals and families.
Besides, medical costs are largely dictated by insurance companies often at the expense of the uninsured. It has been seen that charges levied by service providers for individuals is often discounted for Insurance companies. Now why is that? It should usually be the other way round. If individuals are paying on their own then they should pay much less than if the insurance company was footing the bill. For example if you go to a medical diagnostic service then they could charge you $500 for some tests. But when the insurance company pays them then you would notice that they have settled the bill for $200. So the difference of $300 is paid by the individual if he or she does not have a insurance policy.
In all this where is the role of credit score? There is little to reward people with good credit scores. Ideally, insurance premium should be linked to individual credit score as having a higher credit score is a sign of fiscal responsibility. It would also indicate the these individuals are less prone to riskier adventure which can jeopardise their medical health leading to higher medical bills.
Very often insurance companies are so eager to take money that they forget that they should actually be sharing more information with their customers. Besides, if there are things that jack up pay rates then the customer has a right to know them. If someone is paying for their family then this would size up to a significant amount. It should be made mandatory that insurance companies should inform their customers of all the rules and factors that affect pay rate including credit score.
All said and done there is a immediate and urgent need to bring order in this industry. If this does not happen soon then there is every chance of another scam much in the nature of the sub-prime crisis looming soon.