Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Written by Shuman Roy
Content Writer & Entrepreneur Shuman Roy

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Jul 19, 2021

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credit 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 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, which will result in a loss for the company.

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People with Poor Credit File More Insurance Claims

Research has shown that individuals with poor credit scores are more likely to file insurance claims, costing the insurance company more. Put simply, 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, which saves insurance companies money.

Just like with standard credit scores, the higher your insurance score, the better off you are in terms of pricing. 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 from insurance scores in that they predict your chance of default, otherwise known as missing a minimum 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.

So it’s a similar approach, just tailored a bit differently based on the unique industries involved.

Types of Insurance Scores

There are a number of different insurance scores out there, but the one most commonly used by insurance companies was created by FICO, which 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

Just like traditional FICO scores, these insurance scores can and will vary among the different credit bureaus, as they calculate things differently and take in information at different times.

So don’t be surprised if you see some divergence when viewing scores from different providers.

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Are Insurance Scores Bad?

Those behind the creation of 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 that 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.

But it will likely become more commonplace in the near-future as more and more insurers rely on big data to price premiums.