Definition
An insurance inquiry is a credit check initiated by an insurance company to verify the responsibility of the insurance applicant.
Analysis
Insurance companies require credit checks for many types of insurance in order to determine if there are any excessive risks involved in covering the applicant. This is particularly necessary in situations where an insurance company is insuring a major asset, such as an automobile, house or other building.
Critics complain that a credit score should not determine insurance rates or whether insurance coverage is granted. However, insurance companies have shown a strong correlation between risk and financial responsibility.
Financially responsible consumers are likely to be responsible drivers and homeowners. Furthermore, consumers facing economic hardship may be tempted to commit insurance fraud.
Some evidence supports higher occurrences of arson among homeowners facing foreclosure. Additionally, some car owners behind on their payments may try to torch or otherwise destroy a vehicle in order to avoid repossession.
Insurance inquiries are soft inquiries that are recorded on the credit report even though they do not affect credit scores.
