Identity Theft Insurance
While most people are aware that their credit history is tracked, many are surprised to learn that their insurance history is tracked too. Every claim you've ever filed - car insurance, home insurance, even some medical insurance - is compiled in a database. Insurance companies, just like banks and credit card companies, prefer to do business with people who are "attractive" - which means low-risk in the insurance world. They offer more coverage at lower rates to individuals they determine are low-risk. And they try to avoid or raise rates on those people who - from their perspective - are "high risk." Insurance underwriters have used information to figure out how much risk you represent since policies were written with quill pens. Modern technology has simply allowed them to get a lot more personal. Whether or not you can get auto, home, and medical coverage you may depend on what your individual files say about you. How much you pay may also depend on a score calculated from your credit report. The good news is that you have some say in the matter. You have a right to know about the tracking, and you can be smart about what you do. The bad news is that insurance companies may not always be evaluating risk as advertised. Your claims history, which is fine in good times, may lose you coverage when the economy slows. Simple mistakes can cost you dearly. If you don't check, you may never know that you're too big a risk until it's too late. Here's how to check... Before talking about what tracking the insurance industry does an dhow it can affect you, it may help to go over the basics of how insurers set rates and evaluate customers. If you're not quite clear on the details, don't worry. Many people don't understand insurance. Here's the nickel tour. The basic idea behind insurance is that companies collect premiums from a lot of people and anticipate that only some portion of them will file claims for whatever the insurance covers. And so, the obvious way insurance companies make money is by collecting more in premiums than they pay out in claims. But there's another way they make money. Insurance companies, after all, must make sure that there's enough money in the "pool" to cover all potential claims. Out of necessity the find themselves sitting on a pile of money. It makes sense to invest this money rather than stuffing it in a mattress. And while you might be tempted to criticize insurers for "double-dipping," the fact that they make money through investments is actually a good thing for us consumers because it keeps our insurance premiums down. |
