What Exactly is an “Insurance Score”?
Whether it is on the radio, on the Internet, or on television, it is hard to go a day without the American consumer hearing about the importance of checking his or her credit score. And many people heed this advice, taking advantage of free credit reports, knowing that the key to a successful credit based future is to know their credit score. But many of the same people remain unaware that another number, their credit-based insurance score, is having just as dramatic of an impact on their lives.
Generated by the Insurance Bureau, a consumer’s insurance score is a discrete number that reflects their mathematical insurance risk. This is to say the number reflects how likely a given customer is to file a claim during their coverage period. Based on information found in the consumer’s credit report, such as types of credit in use, length of credit history, late payments, collections, bankruptcies, new applications for credit, and outstanding debt, insurance companies use an individual’s insurance score to determine insurance rates and eligibility. Other information on your credit score such as race, religion, age, gender, marital and family status, income, handicap, nationality, ethnic group and address, are not considered in the calculation of this number.
Despite being based off your freely accessible credit score, your insurance score is not so easy to come by. The best you can probably do is get some partial information on your score from your insurance agent; but don’t expect your agent to hand over a specific number. This is not to say that consumers are powerless to impact their insurance score. If knowledge is power, then consumers who know what to do to improve their insurance score are in a much better position. The short answer of how to improve an insurance score is work on improving your credit score; simple things like paying bills on time, carrying little or no unsecured debt, such as credit card balances, and only opening and keeping the necessary number of credit accounts.
Consumers need to keep in mind that insurance scores are reviewed periodically; usually when a customer’s policy is set for renewal. This means whether good or bad, an insurance score can change at any given time. If an insurance score at any time plays a part in a consumer’s denial of car insurance, by law, under the Fair Credit Reporting Act (FCRA), that consumer must be informed as such and given the name of the credit bureau that provided the information. That bureau must provide a free copy of the credit report and the consumer must have the opportunity to challenge any discrepancies in their credit history.
Given the correlation between poor credit score and increased insurance claims filed, it is not surprising insurance companies have developed a system to evaluate individuals. However, once aware of how insurance scores affect rates and availability of insurance, individuals can take steps to improve their credit and thus, improve their insurance score.
January 23, 2010, Posted by Rainy Day Mitch