Insurance Score, What is it?

When it comes to figuring out what premium an insurance company is going to charge a person to insure them, there are a lot of factors. On a homeowner it depends on the year the house was built, where the home is located, what kind of construction is the house, etc. On auto insurance it was based on age of the driver, type of vehicle, how much you drive the car, what type of limits and deductibles you have, etc.

A number of years ago a new factor was added to this list for both home and auto insurance called insurance score. An insurance score helps insurance companies determine the future likelihood of auto or home claims. The insurance score takes into account two major categories. The first is your past claims history, meaning what claims have been reported and paid by the home and/or auto insurance company.

The second is your financial behaviors. By financial behaviors they mean things like your current outstanding debt, how much credit history you have, how often you pay or not pay bills on time, have you ever foreclosed or declared bankruptcy, how often do you apply for credit card or other loans. It does not factor in, however, your age, race, income level, marital status, etc.

So what does this insurance score do to your insurance premiums? Well, if you have a good insurance score, companies give you a break on pricing because they feel you are less likely to have insurance claims and therefore should be paying less in insurance premiums. If you have a poor insurance score, then they may charge debits to your insurance premium which can then cause your premium to increase. As mentioned earlier, insurance companies feel that if your insurance score is poor then you are more likely to have claims and therefore you should pay a higher premium.

This is great news for those with good insurance scores but bad news for those with poor scores. So, it is important to stay on top of your financial behaviors, not only so you can get a good credit score and better loan rates but also so that you can have a good insurance score and have better insurance premiums. It is important to make sure you monitor your bill paying, keep outstanding debt to a reasonable level and just have a good overall credit history.

One final thought, Fey Insurance Services is not a big fan of insurance scores but it is something that all insurance companies are using. The main reason we are not a big fan of insurance score is that there is no way to inform a customer exactly why their score is what it is. Your credit score is a big factor in determining the insurance score, and it is private information. We prefer methods all parties totally understand. However, as mentioned previously, all insurance companies are filed with the states to be able to use these scores so it is out of our control. We can simply keep you educated on how it can affect you and make you aware of the factor.