Insuring a Bright Future

Good fences make good neighbors, Robert Frost wrote. Do good drivers make good borrowers, I wonder?

There’s been much debate about the practice of insurance companies to look at their customers’ credit reports when determining insurance rates. The reason for that was more whether the borrowers would be able to make their insurance payments and less about whether a good borrower makes a good driver. But is the flip side true, too? Should lenders analyze a borrower’s insurance history when underwriting a loan application?

There are several possible reasons for employing this strategy. Most importantly, it would be helpful information for a lender to know if the person sitting across the table from a salesman at a car dealership has totaled his last four vehicles within six months of receiving them. Many lenders require borrowers to obtain car insurance prior to driving a vehicle off the lot, but once the car is parked in borrowers’ driveways, circumstances can change and premiums can go unpaid. Policies can be changed to reflect less coverage. A lot can happen that can potentially leave a lender in a bind if one or more of those borrowers wrecks a vehicle and doesn’t have adequate coverage. The lender is facing a significant loss in that instance.

It would also be interesting to note if there is a correlation between borrowers who are good drivers and those who make (or don’t make) their payments on time. As has been written many times before, there is a lot of data out there that can help lenders do a more thorough job of understanding their clients and managing the inherent risks of lending someone tens of thousands of dollars to buy a car.