When you fill out an application for personal insurance, the insurance company uses a proprietary rating – called an insurance score or a credit-based insurance score – to help determine whether to provide you insurance coverage and how much you will pay for that coverage.
Here’s what you need to know about how insurance scores work:
Why do insurance scores matter?
Statistical research has showed the strength of a person’s financial health can predict how likely that person is to file an insurance claim. As such, insurance companies use credit-based insurance scores when making decisions about insurance pricing.
These scores are used in combination with other factors, which can include things like claims you’ve made in the past, where you live and the type of car you drive.
How is my insurance score determined?
The way insurance scores are calculated differ by insurance company, meaning some insurance companies might weigh certain factors more heavily than others. Because insurance score formulas are unique to each insurance company, there’s limited transparency on how each company builds its score.
However, according to the Ohio Department of Insurance, some of the common elements that go into insurance scores include:
- Outstanding debts and historical debt payments
- The length of your credit history and the types of credit you have
- Whether you own a home
- Any history of bankruptcy, collections, foreclosures, and liens
The frequency and severity of your past insurance claims, along with your driving record, also contribute to your insurance score.
How do I find out what my insurance score is?
If you’re curious about your insurance score, you can ask your insurance company to provide you with it, or you can request your LexisNexis Consumer Disclosure Report.
In Ohio, your insurance company must notify you if your credit information negatively affects your insurability or insurance costs – and since credit information typically is included in an insurance score, this can be an indicator of a lower insurance score.
How can I improve my insurance score?
The tactics that can help you improve your credit score also can help you improve your insurance score. They include:
- Paying bills on time
- Paying down the amount you owe on credit cards
- Using only a portion of your available credit
- Reducing the number of credit accounts you have
- Avoiding a hard credit check prior to insurance shopping
- Paying for small claims out of pocket, versus turning them into your insurance carrier
While Schauer Group’s Personal Risk team can’t control your insurance score, they can support your efforts to understand the factors that impact your score and help you improve it. If you’d like to discuss this issue further, please reach out to your advisor.
