Insurance 101: What Is an Insurance Score and How Does It Impact My Premiums?

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After our school days are past, most of us are happy to leave grades and test scores far, far behind. We get why they were necessary: Schools need meaningful ways to differentiate students’ performance. These performance ratings then serve as a factor in helping higher education institutions and employers make decisions about who they admit and hire. But it’s often a relief when our grades and scores fade into the ether, becoming less important than our experience and other qualifications.

There are two important scores, however, that almost nobody in the United States ever gets to leave behind: credit scores and insurance scores. These scores are objective measures that help lenders and insurance carriers make decisions about who to trust, and how far to trust them. Without them, the risk of providing loans or insurance would simply be too high.

You probably know you have a credit score. That you ALSO have an insurance score may be a news flash. *So what is an insurance score? Does your insurance score have anything to do with your credit score? How is an insurance score calculated? And if it turns out you have a crappy one, is there anything you can do about it?** In our new Insurance 101 blog, we answer all these questions and more.

Is an Insurance Score the Same Thing as a Credit Score?

Nope. Though they do rely on some of the same data, they’re different scores designed for different purposes. Put as simply as possible, here’s the difference between insurance scores and credit scores:

  • Credit scores tell lenders how likely it is that you can be counted on to repay a debt. They are designed to predict your likelihood of delinquency — that is, the likelihood that you won’t make your required payments toward loans, credit cards, or bills.

  • Insurance scores tell insurance carriers how risky you are to insure. They are designed to predict how likely you are to file an insurance claim.

What Is an Insurance Score?

An insurance score is a confidential numerical rating used by insurers to help them decide how to underwrite and price your insurance policies. In other words, your insurance score is a measure insurers use to decide (a) what insurance coverage they’re willing to offer you and (b) how much they should charge you for it. Generally, insurance scores are only used for personal lines like homeowners, renters, and auto insurance.

Insurance scores change over time. They can range between 200 and 997. Just as with credit scores, higher scores are better, while lower scores indicate that someone is perceived as higher-risk.

How Is an Insurance Score Calculated?

Insurance scores are also referred to as “credit-based insurance scores,” because that’s indeed where they begin. Each insurance company uses its own proprietary formula to calculate insurance scores. Generally speaking, however, most insurance companies look at the following factors:

  • Your credit score. Like it or not, statistical data shows that people with poor credit scores are more likely to file claims.

  • Other info from your credit history. They’ll look at how much you owe, your payment history, how long you’ve had a credit history, and if you’ve recently applied for new lines of credit.

  • Your insurance and claims history. They’ll look at any lapses or missed payments in your history, as well as at auto and homeowners claims you have made in the past. Someone with a history of frequent or excessive claims will be regarded as a higher-risk customer.

  • Your accident history. They’ll assess the quantity and nature of the accidents. At-fault accidents will negatively impact your insurance score.

It’s important to note that insurance scores DO NOT take into account personal information such as age, gender, income, ethnicity, nationality, religion, marital status, level of education, or disability. Insurance scores were developed in the 1990s to reduce reliance on agents’ subjective judgment, disallow discriminatory practices, make the process fairer, and make coverage and rate decisions easier and clearer.

If you’d like to learn more about how credit-based insurance scores are calculated, the National Association of Insurance Commissioners (NAIC) offers a thorough look that explains how different factors are weighted.

Can I Find Out My Insurance Score?

Sorry, but the answer is no. We mentioned above that it was confidential; the scope of confidentiality includes you, too. That said, your credit score is a fairly reliable indicator of your insurance score. A high credit score will typically indicate a high insurance score and vice versa.

What Is a “Good” Insurance Score?

Since every insurance carrier uses its own formula to calculate insurance scores, the definition of “good” may vary slightly from carrier to carrier. One of our insurance partners, Progressive, provides the following ranges:

  • Good: 776-997

  • Average: 626-775

  • Below Average: 501-625

  • Poor: Under 500

How Does My Insurance Score Impact My Premiums?

In most states, your insurance score is a factor within the proprietary formula that an insurance carrier will use to determine your premiums, or rates. If you’ve got a higher insurance score, you’re likely to receive a lower rate; if you’ve got a lower insurance score, you’re likely to receive a higher rate. (Some US states, like California, Hawaii, Maryland, Massachusetts, restrict how credit-based insurance scores can be used by insurers in underwriting and pricing decisions.)

A lower insurance score tells insurers that there’s a higher risk that the cost of your insurance claims will be higher. As a result, they charge higher premiums to help offset the risk and potential costs. Conversely, a higher insurance score makes you lower-risk to insure. That means insurers will offer lower premiums to entice you to buy (and stick with) their insurance.

Your insurance score is not, however, the ONLY piece of information insurance carriers use in their underwriting and pricing evaluation. Depending on the insurance type and applicable state regulations, insurers also look at other factors, including the following:

  • Auto insurance providers may also factor in your location, the make and model of your vehicle, how many miles you drive, and your driving record. In some states, they may also consider your age, gender, and marital status. You may also benefit from a range of discounts (e.g., bundling, autopay, military, senior, homeowner, good student, safe driver).

  • Homeowners insurance providers may also factor in the location, construction, condition, and age of your home; its proximity to hazard risks (e.g., floods, wildfires), fire hydrants, and fire stations; your home’s full replacement cost; and any high-risk amenities (e.g., wood-burning stove, swimming pool, trampoline).

How Can I Improve My Insurance Score?

If you’ve been surprised by high premiums, you may want to know how to improve your insurance score. There are three main things you can do:

  1. Improve your credit score! For most people, taking action to improve their credit will have the biggest impact. That means making on-time mortgage and bill payments, keeping your credit card balances reasonable, and not applying too frequently for new lines of credit. Also, even if you no longer use that random credit card you got 10 years ago, keep the account open. Having numerous open lines of credit open and in good standing helps your case.

  2. Be a safe driver! At-fault accidents are what you really want to avoid. Ensuring proper vehicle maintenance can also go a long way toward keeping you safer on the road.

  3. Avoid filing unnecessary claims! Of course, in many situations, filing an insurance claim will be exactly the right course. That’s why you buy insurance, after all. Many factors go into determining whether you should file a claim or not, so it’s best to talk things through with your insurance agent or advisor before submitting a claim. (They can’t tell you what to do, but they can help you better understand your likely coverage and the surrounding considerations.) One rule of thumb: If the likely cost of the repairs is lower than or close to your deductible, you may want to skip filing that claim.

Ready to find out if your insurance score can get you a better rate on your auto, renters, or homeowners insurance? Get a quote in 90 seconds or less! If you’ve got questions, give us a call at (833) 487-2683 or send us a message.

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Cover Photo by Dylan Gillis on Unsplash

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