Insurance scores, alternatively known as insurance credit scores, play a crucial role in determining your insurance premium payments. Created by insurance providers, this score reflects the likelihood of the policyholder filing an insurance claim during their coverage period. The score, influenced by the individual’s credit rating, directly affects the premiums. A lower score indicates higher risk, resulting in higher premiums. Conversely, higher scores are associated with lower premiums.
The insurance score is a vital factor affecting the total premium for insurance policies including health, auto, homeowners, and life protection. To calculate this rating, insurers rely partially on property claim databases such as the Automated Property Loss Underwriting System (A-PLUS) and the Comprehensive Loss Underwriting Exchange (CLUE).
Insurance scores fall within a range of 200 to 997. Clients with an insurance score of 770 or above are favoured, while scores of 500 or below are considered subpar. Achieving the full 997 is rare, but not unattainable.
Insurance scores are not set in stone and can fluctuate due to various factors. For policyholders looking to raise their low scores (thus potentially reducing their premium cost), the recommended path is improving credit scores and timely bill payments. Reducing debt and minimizing the number of insurance claims filed can also amp up insurance scores.
Even though most insurers follow a similar technique to calculate insurance scores, auto insurance firms maintain different benchmarks for an acceptable score. Some might propose lower premiums for scores in the 800 bracket, while others may give discounts for scores within the 700 range.
Data analytic giants like FICO (formerly Fair Isaac Corporation) and ChoicePoint interpret auto insurance scores differently. FICO categorizes scores from 300 to 900, considering anything above 700 as good and over 800 as exceptional, engendering minimal risk for the company.
Contrarily, ChoicePoint uses a scale from 300 to 997 with good scores gravitating towards the higher end. Customers with ChoicePoint credit reports can receive a free report.
A poor insurance score can have significant financial implications, particularly for auto insurance, a legal necessity for drivers in 49 out of 50 US states. For instance, if a driver's insurance score prompts a $25 monthly increase in their auto insurance premium, it adds up to $300 annually or $1,200 within four years. Over a decade, the cost inflates to $3,000, a considerable sum that could have been utilized for investment or other expenses.