Wednesday, June 19, 2013

What Is An Insurance Score?

An Explanation for the Weary Insurance Shopper

When I worked as a personal lines insurance agent, frustrated consumers would ask me to explain insurance scoring to them on a daily basis. The misconception was that of a scary
number that cost a lot of money and could ruin credit. Although a very complex subject, in this article I will shed some light on the basic concepts of insurance scoring and how your score affects you. I will also share a few tips that may help you improve your score.

Basic Concepts of Insurance Scoring

In this section, the following topics will be discussed:

  1. Two Types of Insurance Scores.
  2. Insurance Score Models Are Unique To Insurance Companies Insurance Scores Are Unique To You.
  3. Policies That Utilize Insurance Scores and the Quote Connection.

1. Currently, there are two types of insurance scores.

  • Non-Credit Based: This type includes personal information specific to you and does not consult your credit report.
  • Credit Based: This type pulls basic information about how you manage your money from your credit report, and then adds personal information as in a non-credit based score.

If you would like to know which type your insurance company uses, ask your agent. He/she should know or be able to find out for you.

2. Insurance Models Are Unique To Insurance Companies Insurance Scores Are Unique To You

Insurance score models are different for each company and proprietary, so it is impossible to know all the factors included for any company in particular. There are hundreds of factors that go into creating an insurance score. Factors such as where you live, what car you drive, type of coverage you carry, when your policy renews, if you own your home, how you handle your money, age of the drivers, marital status, loss history, driving record, etc, etc, etc, are considered. There is even a company that factor in odd and even residential street addresses.

Each company’s underwriting model is geared toward finding those viewed as their “perfect customer.” Some company models are more youth and/or senior driver friendly than others, and some are more forgiving toward those with blemishes on their reports. Other models will calculate a higher score simply for carrying more coverage or higher limits. The best thing to do is shop around and asks questions. You and your neighbor could live in the exact same house, drive the exact same car, carry the exact same coverage, and be offered very different rates from the same insurance companies. Find a company that is most friendly to your unique information.

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When shopping, you may want to ask the agent:

  • Will my initial insurance score stay with me through the life of the policy?
  • Will I have a new insurance score calculated at each renewal?
  • If I carry more coverage or higher limits, will my score improve?
  • If my insurance score goes down, could I be cancelled?
  • If my insurance score goes down, could it raise my premium, or is it only considered if it reduces my premium?

If you feel you have nowhere to go but up, you may want to find a company that calculates a new score at each renewal. In most states, a new score at renewal can only be considered if the premium is reduced. In this case, it would work in your favor to have a new score calculated at every renewal.

3. Policies That Utilize Insurance Scoring and the Quote Connection

Personal lines auto and home policies use insurance scoring for underwriting approval and rating. Some companies use scoring for auto only, some home only, and others use scoring for both. Although heavily disputed, it is legal for insurance companies to use insurance scoring of some type in most states.

Typically, insurance companies will honor rate quotes for only 30-90 days because information could change on both sides during that time period. On the company side, rates and underwriting rules can change. On the customer side, loss history, driving record, and insurance scores can change. Your score can change every 90 days. If you are not happy with a quote you receive, you may want to request a new quote 91 days later. A new insurance score will be calculated with the updated premium, and you could be offered a better rate.

How Your Insurance Score Effects You

In this section, the following topics will be covered:

  1. Credit Based Insurance Scores And Your Credit Score
  2. Can You Be Denied A Policy Due To A Low Insurance Score?
  3. Can You Ask To See Your Insurance Score?

1. Credit Based Insurance Scores and Your Credit Score

An insurance score is a numerical system intended to predict the risk of a loss for insurance companies. It is completely different than the calculations used by financial institutions to create credit scores. Your insurance score does not necessarily go up and down with your credit score because information from your credit report is only part of the equation. The role your credit report plays is to determine how you handle your money. Insurance companies are looking for information such as:

  • Do you pay your bills on time?
  • Have you been through bankruptcy?
  • What type of credit accounts do you have?
  • How much total credit do you have?
  • How much of your credit is used verses open?
  • How long do you keep your accounts?

The theory behind adding credit information to insurance score calculations is...the lower a customer's credit score, the more likely the customer is to make a claim. Remember, there are many factors considered in scoring calculations, so having less than stellar credit is not a clear indication that your insurance score will be low.

Please note, when insurance companies pull credit reports to calculate insurance scores, credit scores do not change. Inquiries are processed as a "soft hit" and show as an inquiry only.

2. Can You Be Denied A Policy Due To A Low Insurance Score?

Yes, it is legal in some state to deny coverage or non-renew a policy based on a low insurance score. Insurance rates are regulated by each state, but underwriting guidelines are not. If you are denied coverage due to a low insurance score, you may want to inquire again later. Some insurance companies move underwriting thresholds for eligibility up and down to control how much business they are writing. If you are not eligible with a particular company, check again, you might be next time…especially if your score improves.

3. Can You Ask To See Your Insurance Score?

When an insurance company denies a policy or offers less than their best rate, it is called adverse action. When adverse action is the result of a low insurance score, most states require the insurance company to notify the customer by mail. They are also required to include a list of sources used to determine the score. Insurance companies do not have to share the actual insurance score with you; however, if you believe there is a reporting error, you can inquire and correct it. By contacting consumer agencies that supplied information to your insurance company, you can correct errors and ask the insurance company to pull your reports again. The agency supplying incorrect information should notify the insurance company of the update. A few of the major players are listed in the Helpful Links box.

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Documents and What You Can Do To Improve Your Insurance Score

In this section, the following topics will be covered:

  1. Documents Used To Determine Your Eligibility And Rates
  2. Tips To Help You Raise Your Insurance Score

1. Documents Used To Determine Your Eligibility and Rates

To determine eligibility and rates, insurance companies use the following:

  • CREDIT report for credit based scoring.
  • MVR (Motor Vehicle Record) report when applying for auto insurance.
  • CLUE (Consolidated Loss Underwriting Exchange) report which lists claims history, insurance company payouts, and is often used with auto and home applications.
  • Information that you supply on your application.

Be sure credit bureaus and data suppliers have accurate information on your reports.

2. Tips to Help You Improve Your Insurance Score

In addition to accurate reports:

  • Drive safely to keep your MVR and CLUE reports clear.
  • Choose higher limits and full coverage when appropriate.
  • Choose deductibles that are comfortable for your wallet and still raise your score. Yes, your deductible choices can alter your insurance score.
  • Consult with your agent regarding the consequences of submitting small claims.
  • Do your best to pay your bills and taxes on time.
  • Strive for well-aged accounts and avoid unnecessary inquiries.

As you can see, insurance scoring is quite intricate. The rules vary from company to company and state to state. You may want to do a little state specific research before going shopping. By visiting the NAIC (National Association Of Insurance Commissioners) map, you can access state specific insurance websites.

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Note: This article is not a substitute for legal or insurance agent counsel as it has been written for informational purposes only. Please refer to the professionals in your state for more information that is specific to your needs. Anyway, if this article may help your friend’s then feel free to share with social sharing button and let us know your feedback by comment bellow.


  1. You can take damage certificate and substitution, if you're not able to get the damage certificate from transporter you can not get the full payment of loss, the insurer can deduct twenty fifth to twenty fifth of the Loss quantity and that i suppose its higher than the rejection.

    William Martin

    Financial Claims Made Simple