What Is Insurance Score?

Insurance score is a rating factor, which predicts risks of an applicant causing losses to the insurer by submitting claims. Every company has its own way of calculating it but they generally look at the information on your credit report as well as including further details available to them like your accident and claim history and their own claim experience data. In the process, not only do each company determine your insurance score but also they decide how much weight they will place on the score when they calculate premiums. In other words, you may score high with some companies but it may not reduce your rates as much as with other companies.

Although insurance companies don’t reveal how they calculate insurance score, drivers would have a good idea about it by looking at their credit score because most insurers mainly look at the following details on your credit report;

  • Length of credit history sheds more light into your financial activities, offers a trail of addresses and links other people in your household to you. The more information the better.
  • Number of open accounts and whether they are in good standing or not. These could include accounts with utility companies, lenders, banks, credit card and other service providers.
  • Payment history is at the hearth of it. You lose points for late payments or unpaid bills.
  • Available credit and its usage is measured. Having available credit helps but it hurts if you are already maxing your credit limit.

In addition, insurance companies look at your accident, claim and insurance history while they determine your insurance score.

Because its calculation heavily relies on your credit history, it is often referred to as credit-based insurance score. It is now common knowledge that insurers look at credit history while determining premiums charged in nearly all states, except California, Hawaii, Massachusetts and Michigan. Insurance score takes it a little further than just looking at financial activities and includes claim, accident and insurance history into account to come up with a figure that indicates an applicant’s risk level in terms of making claims or involving in accidents.

Insurance score is a major rating factor in premium calculations and nearly all automobile insurance companies use it because they believe it helps them to predict future losses they may face and allow them to calculate premiums more accurately.

The idea is to make sure every policyholder contributes their fair share to the insurance pool from which all the claims are paid. If insurance score allows them to predict who is likely to make a claim more accurately, this would prevent low risk drivers bearing more of the costs attributed to high-risk drivers.

Here are other facts and the ideas behind uses of insurance scores;

  • Only credit-related details are included in insurance score calculations and no discriminatory data like gender, ethnicity, income or address is considered.
  • Insurers are mainly concerned about future losses and insurance scores help them forecast the loss risk each applicant represents. By measuring the chance of receiving claims better, companies can calculate the premiums more accurately. Then everyone pays the premium corresponding to their loss-risks for the company and low risk drivers don’t end up paying for other people’s losses in the end.
  • When someone can maintain good financial standing in good and bad times, it shows the restraint they apply not to fail their obligations. This is taken as a good indication that such people are less likely to make claims because they have money issues. Whatever the reason, less claims means lower losses and risk for insurance companies.

Since credit scores serve multiple purposes, including influencing your insurance score and it is difficult to find out the score each insurance company gives, you may be served better if you concentrate on improving your credit score if you want cheaper auto insurance. If you get a few quotes from different companies, you will know how they price your details and that may be the easier and more purposeful option.