Insurance Score

An “insurance score” helps insurance companies determine if you qualify for insurance based on their underwriting guidelines.

It’s similar to a credit score used by creditors (such as credit card issuers and mortgage lenders) to assess your creditworthiness.

Credit-Based Insurance Scores

This article refers to credit-based insurance scores, which are numerical numbers used to illustrate your insurance risk at a particular point in time.

They help insurance companies more easily predict if you’ll file a claim in the near future that will result in a loss for the company.

People with Poor Credit File More Claims

Research has shown that people with poor credit are more likely to file insurance claims, costing the insurance company more. That pushes their insurance rates up.

Essentially those with good credit scores tend to take better care of their belongings (car, home, etc), leading to fewer filed claims.

Just like with standard credit scores, the higher your insurance score, the better. And vice versa.

So if you’ve filed a lot of claims in the past, your insurance score will reflect that and be lower as a result.

Insurance Score vs Credit Score

Traditional credit scores differ in that they predict your chance of default, otherwise known as missing a payment.

Your insurance score focuses mainly on propensity to file a claim, and when combined with your claims history and driving record, determines what rate (insurance premium) you’ll pay.

Types of Insurance Scores

There are a number of different insurance scores, but the one most often used by insurance companies was created by FICO, who also created the all-powerful Fico score.

It is referred to by different names at the three different credit reporting agencies:

InScore® at Equifax
Fair Isaac Insurance Risk Score® at TransUnion
Experian/Fair Isaac Insurance Score at Experian

Are Insurance Scores Bad?

Those behind insurance scores argue that the good outweighs the bad because most people have good credit, and thus will pay less for insurance as a result.

And insurance scores help insurers better forecast the future, allowing them to price policies more accurately, lowering costs for the bulk of their customers.

Keep in mind individual insurance companies also may have their own proprietary insurance scores (financial responsibility scores), and not all insurers use credit-based insurance scores to determine your rate or eligibility.

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This post was written by The Truth Team on September 30, 2010 Comments (0)