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Credit-Savvy Agents Can Increase Their Value To Consumers

Author: Michael Gaughan

By now, most property and casualty insurance agents are aware that a majority of their customers (approximately three-fourths) actually benefit from underwriters using their credit behavior to set insurance policy rates. However, when asked the reasons why, very few can articulate them. A lack of knowledge and understanding, along with the voices of the remaining one-fourth of customers, has resulted in a growing number of complaints to state Department of Insurance (DOI) divisions over the past few years.

To help demystify and provide education about the use of credit information in the insurance industry, a set of best practices has been developed by TransUnion, a global information solutions company that develops proprietary, credit-based insurance scores. The best practices address the recurring causes for consumer complaints, many of which have become the driving force behind increased scrutiny from insurance regulators and legislators.

1. Consumer Notification Prior to Quote

Up-front communication about the positive uses of credit information in the underwriting process portrays a straightforward position on the issue. It gives the consumer the chance to ask questions and allows you to explain the potential rewards of responsible credit behavior. It also helps set the appropriate expectations, eliminates the “surprise” factor in the sales process and allows the applicant the opportunity to withdraw the request if they want time to improve their creditworthiness.

2. Agent Education

As in most sales, your income is directly tied to how many insurance policies are sold to consumers, so you should feel empowered to explain why the credit information is used. Seventy percent of the time you will be highlighting the positive impact a consumer’s credit behavior has on their insurance cost. The remaining 30 percent can receive the unexpected value of your consulting services on ways to improve their credit profile to benefit from future lower rates.

3. Consumer Report Impact Notice

Letters indicating the results of credit checks are in most cases entitled “Adverse Action.” For this reason, it is important to inform consumers of the specific action that was taken, e.g. if it is a discount, tell them so and give the percentage or amount; if it is neutral or a surcharge, convey this information using the Expanded Reason Code Verbiage (if you do not have this information, ask for it!); and offer proactive credit management tips. Now is the time to explain that the consumer can get a lower rate in the future if they take the necessary steps to improve their financial standings.

4. Consumer Statement Exception Process

There are some extenuating circumstances that could have lowered a consumer’s insurance score, such as job loss, divorce or other major hardship. These consumers have the right to enter a Consumer Statement on their credit report to comment on their credit history. In order for the Consumer Statement to be useful for the consumer, you must be willing to develop an exception process and create alternative decision criteria for these applicants. This will ensure the integrity of the data and proactively show legislators and regulators that processes are in place to address these exceptions.

5. Automated Re-evaluation of Decision after Dispute

If a consumer feels their credit report is inaccurate, they can file a dispute with a credit reporting company. If the credit report is revised as a result of the dispute, consumers can require the credit reporting company to send a revised copy to the carrier. Many carriers do not review the revised reports and require the consumer to reapply, negating any education done to date with the consumers. For this reason, a process should be established to consider revised reports when they are received.

6. Reconsideration Of Credit At Renewal

If you are going to advise consumers on ways to improve their creditworthiness, then it is only fair to re-evaluate their credit profile from time to time to see if they deserve better rates. Conversely, consumers who become less credit responsible over time should be held to the same consequences as others in their risk class. The practice promotes responsible personal financial management in the same way attending driving school promotes responsible driving. It is just good public policy.

7. Reinforcement Of Benefit To Consumers

The bottom line is that education and transparency are key. As the insurance carrier’s direct connection to the consumer, you are in the best position to reinforce the necessity (and in most cases benefit) of using credit information. Additional ways you can be successful in this task include:

Communicating the benefit of positive credit to consumers at the time of the quote. Tell them the percentage of all applicants that receive a discount and let them know that credit is used for all applicants.
Adding “credit discount” information to the declarations page on the insurance policy. List it with the other discounts to further establish the use of credit and reinforce the benefit the insured consumer is receiving.
Trying to understand the overall impact of credit use to your business. This helps you reinforce the fairness of the rating program with consumers.

The passage of the Fair and Accurate Credit Transactions Act, amending the federal Fair Credit Reporting Act, reaffirmed the provisions that allow the use of credit reports for insurance underwriting. Underwriters can therefore be expected to continue using credit-based insurance scores to set insurance policy rates because of the superior risk segmentation and direct marketing opportunities that scores provide. By adopting a set of best practices, the knowledge you gain and pass along will only increase the value you bring to customers on a daily basis.

Michael Gaughan is vice president responsible for setting and directing TransUnion’s marketing strategies for the insurance industry. In addition, he facilitates product development, oversees analytical work, and manages relationships with TransUnion’s partner companies within the insurance market. Gaughan can be reached via email at mgaughan@transunion.com.