What decisions can companies make about you based on your postcode? Could they decide whether you’re eligible for a credit card or a mortgage? Or whether you should pay over the odds for life insurance? You’d hope not – after all, what do those six digits at the end of your address really say about you?
More than you'd think, especially if you deal with a company that utilises ‘postcode profiling’. This is a research technique where certain lifestyle related characteristics are modelled on a postcode level and used to make decisions about the fiscal risk of taking you on as a customer. Put simply, your postcode could be having a positive - or a negative - impact on your finances.
Here are a few ways that companies use your postcode to make decisions about you:
Credit rating
Credit rating agency Call Credit uses an indexing tool called GeoDebt which allows lenders to “identify the risk of lending to customers who are living in areas that have high levels of over-indebtedness”. This index is based on data concerning a postcode’s “affluence, economic and lifestyle characteristics” and ranges from 1-100 with the most 'over-indebted' postcode areas being represented by a lower index.
Call Credit is not alone. Its rival, Equifax, also uses postcode and area level modeling to enable lenders to equate themselves with regions that they may not be familiar with.
If you have a gleaming credit report and a long history of re-paying debt on time then a dodgy postcode shouldn’t stop you from getting credit. But if your credit report has a few black marks on it already, a postcode with a low index score certainly won’t do you any favours, and may cause your application to be treated with greater scrutiny.
Life insurance
The impact of the postcode lottery on home insurance rates is well known and well debated. But what you may not realise is that some life insurance providers are now taking your postcode into account when deciding what premium you will pay.
Obviously, your medical history will impact on any life insurance claim – but in an attempt to deduce how long you will live, average life expectancies profiled to postcodes are now often used. Here’s a table of the areas with some of the highest and lowest average life expectancies across the UK.
|
Area |
Male life expectancy at age 65 (years) |
Female life expectancy at age 65 (years) |
|
Dorset |
84.3 |
87.1 |
|
Buckinghamshire |
84.2 |
86.4 |
|
Somerset |
83.6 |
86.4 |
|
Glasgow City |
78.8 |
82.4 |
|
Merseyside |
81.3 |
84.1 |
|
Tyne and Wear |
81.4 |
84.2 |
Source: Office for National Statistics and the General Register Office for Scotland.
As you can see the difference in life expectancies across the country is fairly large and so obviously has the potential to impact greatly on your life insurance premium.
Not all life insurance providers use postcodes when assessing applications – Aviva and the Post Office do, for example, while Legal & General and AXA Sun Life do not. If you feel your postcode may unfairly affect your life insurance policy then it’s definitely worth checking with the provider before starting any plan.
This tip is absolutely vital to know if you want to make the most of your pension pot at retirement.
Pensions
Postcode-profiled life expectancies are now also used to determine pension annuity rates.
The annuity is a monthly or yearly rate paid to you after you retire by a pension provider in return for your pension pot. When the provider sets this they are essentially gambling on how long you’re going to live – if you die early, they profit from your pension pot, if you live for longer, they have to pay you more.
In order to remain profitable organisations, pension providers set your annuity rate depending on their assessment of your life expectancy.The lower your life expectancy, the larger the annuity you will be offered - as the provider doesn’t expect to have to pay it to you for very long.
So if you live in a postcode with a higher life expectancy it’s likely that you’ll receive a smaller pension payout than someone else of your age, gender and health profile living in an area with a low life expectancy.
For more on pension annuities, read Will your postcode affect your pension?
Property price
Obviously your postcode will affect the price of your property on a location level, but research by Zoopla has shown that the name of your street may alsoplay a part. Apparently the highest valued properties in the UK are found on streets with ‘Hill’ (average price of £341,466) or ‘Lane’ (£328,378) in the name.
Head over to Most expensive street names in the UK to read our critique of this research and to view the stats in full.
Postcode marketing
Using postcode profiling is obviously a quick and easy way for companies to make decisions about possible customers – but it’s a fine line between efficiency and crude stereotyping. The use of postcode level marketing models blurs this line even further.
Postcode Anywhere provides a Customer Profiling marketing tool that claims to allow companies to identify characteristics of their customers including what newspapers they read, how much they spend on their car and even how much they shop online. As a result companies can make more informed decisions about direct marketing campaigns.
Experians’s Mosaic Global database provides a similar service – it is formed of ten different neighbourhood types, each with a set of distinctive lifestyle characteristics. These types can be applied to cities across the world, as Experian claims that each city has its “enclaves of metropolitan strugglers”, suburbs of career and family-orientated households and “communities of sophisticated singles”.
What do you think?
Would you be happy being classified as a ‘metropolitan struggler’ by a company, just because of the area you live in? Should you pay more for life insurance because of your postcode? Is it time to remember what postcodes were actually designed for: sorting mail?
Let us know your views in the comment box below.