What is an Insurance Score and how does it affect my premium?

An Insurance Score is a number that helps predict the future losses of a policyholder or applicant. Research shows Insurance Scores are very predictive of the frequency and severity of future losses. Overall, an Insurance Score considers credit management patterns of the individual. Actuarial/statistical companies developed Insurance Score models using actual policyholder performance data from insurance companies and the corresponding credit data of policyholders from major credit bureaus.

What are some of the types of information used to develop an Insurance Score?

  • Payment History
  • Outstanding debt/Bankruptcies
  • Collections
  •  Types of credit in use
  • Length of credit history
  • New applications for credit

What type of information is NOT used to develop an Insurance Score?

  • Income/Occupation
  • Address
  • Nationality/Ethnic Group
  • Gender
  • Marital Status
  • Religion

How do insurance companies use Insurance Scores?

According to research conducted, policyholders with higher scores have fewer, less severe insurance claims. Most all Insurance companies that use Insurance Scores do so to provide a discount to those that qualify with higher scoring tiers. This does not mean that surcharges are used for a low insurance score. The insurance score is intended to reward policy holders for good credit and fiscal management.

 

What are some methods a policyholder can do to improve their Insurance Score?

  • Keep accounts current
  • Keep balances low in relation to your credit limit
  • Minimize consumer-initiated inquiries while applying for new credit.

 

The Insurance Score is generated with information found in an individual’s Credit Report, but not your Credit Score.  The premium adjustment that results from an Insurance Score only makes up a portion of the overall premium calculation. Other premium discount variables may include the following:

  • Multi-Policy (Two or more policies with the same company)
  • Senior (55 or older)
  • Claims Free (3 or more years)
  • Loyalty (Years with the Company)
  • Group (Credit Union or Alumni)

 

Below is an example of the Credit Score Tier often used by Insurance Companies.

 

Credit Score Tier

Score:

Tier:

871-900

20

841-870

19

811-840

18

781-810

17

751-780

16

721-750

15

691-720

14

      661-690          13

631-660

12

601-630

11

571-600

10

541-570

9

511-540

8

481-510

7

451-480

6

421-450

5

391-420

4

361-390

3

331-360

2

300-330

1

 

When an insurance score is used, you may receive a notification in your insurance policy as follows: 

 Congratulations! A discount has been applied to your policy. (A discount sum will be shown, for example “750”, and this score will also vary based on the policyholders own score metrics). The source for the Insurance Score used  in your case will also be included.  In this case, the source is TransUnion and the disclosure may appear like this:  

TransUnion's role is to provide (your insurance carrier) with a proprietary Insurance Score based on credit information collected by TransUnion. If you have concerns regarding the accuracy or completeness of the credit information, please contact TransUnion directly. Your insurance carrier will then give the top reason codes contributing to the calculation of your actual Insurance Score. Your experience will vary and be explained according to your actual credit score results.

There is not a day that goes by that my team does not hear complaints about the insurance scoring system. These lower scoring prospects/clients say that it is unethical and unfair. Typically, those that complain the most are not receiving the higher scoring discounts while demanding that this system be discontinued making it fair for all. These prospects/clients do not realize that we, at the insurance agency, do not have any control over this scoring system. This system has been implemented at the insurance company level and approved for use by the insurance bureau. What they also fail to realize is that if the insurance scoring system is discontinued, that they will be relinquishing their own chances to enjoy lower premiums in the future as their scoring tier increases. Interestingly enough, those that are receiving the higher insurance score discounts are not complaining at all! Therefore; how fair would it be for those that are not receiving the higher scoring discount to deny others of this discount that they have deservingly earned?

 

Posted 6:13 PM

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