What Is Insurance Credit Scoring?

Understanding insurance scoring and insurance credit score
••• What is an insurance credit-score? How does insurance scoring work?.  Hero Images / Getty Images

What Is "Insurance Credit Scoring" or Your "Insurance Score"? 

What makes a person really insurable? Is there a score that can help you understand how to get lower insurance prices or good deals on your insurance premiums?

Some companies use Insurance-Credit scoring, but there is no one score used by everyone.

We review all the factors that go into how an insurance company determines your insurability, as well as provide insight into what kinds of things could help you bring your insurance prices down by understanding insurance scoring with a few simple tips.

Insurance Scoring and How It Works

For years insurance companies have been experts at coming up with ways to figure out how likely it is that an accident or "loss" will happen, or what the risk is in a situation. Based on this assessment that takes into account many complex factors, insurance companies determine premiums.

Some companies may use stability rating or micro rating, for example, which may combines aspects of credit rating, zip or postal code rating (which focuses on location in known claims areas) or risks based on the infrastructure of the district (that impact claims).

These are all very complex, so as a base point, understanding how an insurance premium works, gives a pretty straightforward insight into your insurability or how an insurance company would score you as a potential client or risk.

What Are the Factors in Insurance Scoring?

Most people think about their basic loss experience, or number of claims when they think about insurance rates.

Insurance claims are not the only factors that come into play when an insurance company is assessing your insurability and the appropriate pricing for insuring you. Here are several factors that can impact your cost of insurance:

  1. Your insurance history. How long you have been insured, if you have paid your premiums consistently, if you have ever been cancelled for non-payment by an insurance company. 
  2. Your general financial history and behavior. Although credit scoring is not used with all insurance companies or in all states, many insurance companies may ask for your permission to check your credit. Having declared a recent bankruptcy or poor credit may affect what kind of policy you qualify for. Read more about credit-based insurance scoring in the section below.
  1. Your driving record, and claims history. How many tickets or moving violations you have on your driving record can impact your insurability, and cost of your car insurance. Some insurance companies have underwriting guidelines that will not allow them to insure you when you have too many claims or tickets, in these cases, you may have to go to a high-risk insurer or pay much higher costs.
  2. How you use your car. If you do high mileage or use your car for business this will also play into your car insurance rate. For example, if you have several drivers on one car, the risks of having an accident increases because the car is on the road a lot more than if just one person is driving to and from work every day. Higher mileage may pay higher rates due to increased usage or mileage even though the primary driver is only driving to and from work a very short commute every day, the annual mileage will help the insurance company understand how often the car is on the road. The more a car is on the road, the more likely an accident is to occur.
  1. Your personal information. Every insurance company has different target clients. For example, if a company is trying to appeal to seniors, then just being a senior may make you "score higher" with the insurance company who is trying to appeal to senior aged clients. Another example is insurance companies who are trying to attract university graduates, professionals or people living in certain neighborhoods.
The moment your personal profile falls into what the insurance company is looking to insure, your insurability and "score" or appeal with that insurance company increases and your price will be competitive.

Do All Insurance Companies Use the Same Insurability Criteria or Credit-Based Insurance Scoring?

No, there is no one "insurance score" that all insurance companies use.

There are only guidelines and common aspects of factors each insurance company will use depending on their own business strategy. Each insurance company has actuaries and underwriters who determine rates. Your "score" would be viewed differently with each of them, based on their underwriting criteria. 

One factor that will help get you a good price with many insurance companies, regardless of their business plan or target clients, is having a high insurance credit score. Studies have shown that having high credit scores are indicators of financial stability, and financial stability has been shown to be a good indicator of how likely a person is to make a claim.

Credit-Based Insurance Scores

According to the Insurance Information Institute, thinking that your credit score has nothing to do with your insurance is a myth

How Do You Figure Out Your Insurance Score?

There is no one score that will apply to all insurance companies because they all use different ratings.

Using different rating structures is one way insurance companies can compete in the marketplace. Each insurance company identifies areas they think they can do well in, and go after that kind of client. You can become familiar with your credit score though.

How Is the Insurance Credit-Score Determined?

The National Association of Insurance Commissioners (NAIC) explains that there are a few different companies that provide Insurance-Credit Scores to insurance companies. For example, according to the NAIC, this is what FICO provides insurers when they are asked for the insurance credit score:

  • Payment History
  • Outstanding Debt
  • Credit History Length
  • New Credit Applications
  • Credit Mix (type of loans, credit cards, revolving credit, etc.)

Those factors can change fairly quickly, so if you are hit with high insurance rates one year, and it happened to be the year you had maxed out all your cards, and had to get a new car, so were applying for credit a lot, 6 months to a year later your insurance credit score could change completely when things settle down.

TIP: If any of your credit score factors change, an insurance premium that uses credit based insurance scoring may also change as the situation settles down or stabilizes.

All of these factors may be confusing. If all insurance companies had one way to look at things it would make things much easier for consumers... On the flip side it might eliminate healthy competition because there would be no competitive advantage.

Online Tool: What Is "Insurability Score"

One company, has come up with a helpful easy online tool that gives an "Insurability Score" however this is not a rating factor in itself used by insurance companies. It is not the same as the insurance credit score or insurance-credit scoring. The Insurability Score is a tool developed by The Zebra to help consumers understand their general insurance profile on a basic level by asking questions and providing a "score". According to The Zebra, this gives users unique insight into behaviors and factors that affect their auto insurance risk.

The Different Ways Insurance Companies Score You

We've gone over several different ways insurance companies may "score" you to:

  • determine your insurability
  • give discounts
  • use credit score and insurance payment history
  • offer better insurance rates and lower prices

The most important factor in figuring out how insurable you are is to understand what criteria are important to the insurance company.

Once you understand how they will be rating you, you can try and renegotiate rates when the factors are in your favor and improve factors that are hurting you or find another insurance company willing to offer you better prices.