An insurance score, also known as an insurance credit score, is a rating computed and used by insurance companies that represents the probability of an individual filing an insurance claimwhile under coverage. The score is based on the individual’s credit ratingand will affect the premiums they pay for the coverage. Low scores reflect higher risk, so a high score will result in lower insurance premiums. Conversely, a low score will result in higher premiums.
Key Takeaways
- An insurance score is a credit rating used by insurance companies to assess a potential insured consumer's level of risk.
- The insurance score is one of the primary determinants in how much monthly insurance premium the consumer will be assessed.
- Scores range between 200 and 997, with low scores reflecting higher risks.
- What constitutes a good score varies for different types of insurance and rating companies.
Understanding Insurance Scores
An insurance score is a key component in determining the total premiumthat an individual pays for health, homeowners, auto,and life insurance policies. Insurance companies determine an individual’s score,in part, by usingproperty claim databases like the Automated Property Loss Underwriting System (A-PLUS) and the Comprehensive Loss Underwriting Exchange (CLUE).
Insurance scores range between a low of 200 and a high of 997. Insurance scores of 770 or higherare favorable, and scores of 500 or below are poor. Although rare, there are a few people who have perfect insurance scores.
Scores are not permanent and can be affected by different factors. There are several ways for a consumer to increase their low scores (and possibly lower their premiums). To begin, a consumer will benefit by improving their credit scoreand paying bills on time, in addition to reducing any type of debt. A consumer may also try to limit the number of insurance claims filed over a certain period in order to boost their insurance score.
While most health, homeowners, and life insurance companies have a similar process for computing consumers' insurance scores, auto insurancecompanies have different standards for what they consider a good score. Some may offer lower premiumsfor scores in the 800-range, while others will only require scores in the 700-range to qualify for certain discounts.
Data analytic companies like FICO (formerly the Fair Isaac Corporation) and ChoicePoint have different scales for how they interpret the scores of auto insurance companies. FICO's scale ranges between 300 and 900. Scores above 700 are considered good, and anything above 800 is considered exceptional (and of little risk for the company).
ChoicePoint’s scores, on the other hand, range between 300 and 997, with good scores nearing the higher end of the scale. Consumers with ChoicePoint credit files may obtain a free report.
A low insurance score can be costly, especially for auto insurance coverage, which is legally required for car drivers in 49 of the 50 states in America. For example, if an individual’s insurance score causes their auto insurance premium to increase by$25 per month, they will pay approximately $300 more in premiums per year. In four years, the premium difference will be $1,200. Over 10 years, it will cost them $3,000, an amount that could be invested or spent in other ways.
FAQs
A credit-based insurance score is used by providers of auto, homeowners, life and even health insurance to determine if you present a financial risk. Your insurance score varies depending on which credit monitoring agency is providing data: TransUnion, for example, uses auto insurance scores that range from 300 to 900.
What is the purpose of an insurance score? ›
An insurance score is a credit rating used by insurance companies to assess a potential insured consumer's level of risk. The insurance score is one of the primary determinants in how much monthly insurance premium the consumer will be assessed. Scores range between 200 and 997, with low scores reflecting higher risks.
What is the score of insurance? ›
Insurance score chart
| Score range | Rating |
|---|
| 776 – 977 | Good |
| 626 – 775 | Average |
| 501 – 625 | Below average |
| 200 – 500 | Poor |
Dec 14, 2023
10 Tips to Improve Your Insurance Score
- Pay bills on time.
- Keep outstanding balances at least 75% below your available credit.
- Avoid too many hits on your credit report from loan and credit card applications.
- Limit the number of credit accounts and credit cards in your name.
- Regularly review your credit report.
An insurance company rating is a predictive score made by a rating and assessment agency to predict the future ability of an insurance company to meet financial obligations.
What are the benefits of score? ›
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What's the purpose of a personal insurance score quizlet? ›
An insurance score is comprised of an individual's credit score and his or her history of claims. The more claims an individual has filed the greater a risk that individual is viewed to be and the higher premiums will be on his or her insurance policy.
What is the difference between insurance score and credit score? ›
The scores predict different things.
Credit-based insurance scores predict the likelihood that someone will file claims that lead to a loss for the insurance company. Credit scores predict the likelihood that someone will miss a bill payment.
What is an auto insurance score? ›
Auto insurance scores are used by insurance companies to determine your risk of filing a claim. They consider factors such as your driving record, your age, the type of car you drive and your credit score. Credit scores are used by lenders to determine your risk of defaulting on a loan.
What is a good coverage score? ›
With that being said it is generally accepted that 80% coverage is a good goal to aim for. Trying to reach a higher coverage might turn out to be costly, while not necessary producing enough benefit. The first time you run your coverage tool you might find that you have a fairly low percentage of coverage.
Most U.S. insurance companies use credit-based insurance scores along with your driving history, claims history and many other factors to establish eligibility for payment plans and to help determine insurance rates. (Again, except in California, Hawaii and Massachusetts).
When developing an insurance score factor a company may not consider? ›
An insurer may not use any of the following as a negative factor: (1) a credit inquiry that is not initiated by the consumer; (2) an inquiry relating to insurance coverage; (3) a collection account with a medical industry code; (4) multiple home mortgage or motor vehicle lender inquiries made within 30 days of a prior ...
What is an example of a rating in insurance? ›
Understanding Insurance Company Credit Ratings
For example, A.M. Best's highest insurance company credit rating is A++, meaning superior, while Fitch's is AAA for exceptionally strong, Moody's is Aaa for the highest quality, and Standard & Poor's is AAA for extremely strong.
What are the three methods of insurance rating? ›
In property and casualty insurance, there are three basic rate-making methods:
- Judgment Rating is used when the factors that determine potential losses are varied and cannot easily be quantified. ...
- The second rate making method is class rating, or manual rating. ...
- The third rate making method is merit rating.
B++, B+ Good Assigned to companies that have, in our opinion, a good ability to meet their ongoing insurance obligations. B, B- Fair Assigned to companies that have, in our opinion, a fair ability to meet their ongoing insurance obliga- tions.
What is auto insurance score based on? ›
In general, your auto insurance score is based on your accident history, your claims history and information pulled from your credit report. Some of the information from your credit report that can impact your insurance score includes your: Length of credit history. Payment history.
Why is credit score important for car insurance? ›
How does credit affect car insurance prices? Nationwide uses a credit-based insurance score when determining premiums. Studies show that using this score helps us better predict insurance losses. In fact, 92% of all insurers now consider credit when calculating auto insurance premiums.
