Glossary of Business Credit Terms

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Insurance Score

Definition of Insurance Score

An insurance score, also known as credit-based insurance score, is a mathematical rating determined by a multifaceted model derived from data in a person's credit report. These insurance scoring models have been proven to be able to statistically predict the chances a customer will claim a loss covered by their insurance.  

How Do Insurance Scores Work?

Insurance scores are linked to the amount of claims people make. The cause for the popularity of so many insurance companies adopting this method of using insurance scores to underwrite and rate people, is because the majority of they discovered a robust affiliation between a person’s insurance score and possible losses. When the score was low, they found there was a higher risk of a claim.

Insurance scores aid insurers in achieving these goals via the differing ways insurance companies use the insurance scores in various ways and varied extents. Characteristics which could be involved in your insurance score consist of unpaid debt, how long of a credit history you have, if you have paid creditors late, if any bill has gone into collections or you have filed for any bankruptcies, as well as how many new credit applications you’ve filed for, how many credit cards you have, the kind of credit accounts you have, and how much unused credit you have.

Which Credit Factors Affect Your Insurance Score?

An insurance score is determined largely on a person’s overall credit rating. The final insurance score that’s determined comes from a mix of a person’s credit score and their past history of previous insurance claims.

Statistics show that people who have low credit scores are quite a bit more expected to put in a claim on their insurance than someone with a high credit score. Similarly, people who have what is called a “perfect” insurance score are considered as those with the least likely chance of putting in a claim their insurance will have to pay.

Hardly anyone though has this perfect insurance score. But it isn’t impossible to earn it. But, its quite conceivable you can get a great insurance score, and then you’ll have lower monthly payments for your insurance.

Data used to determine an insurance score consists of unpaid debt, credit history length, if you’ve paid creditors late, number of new credit account applications, whether you pay your bills on time, if you have past due bills, and things that show up in your public records.

Credit investigations by insurance providers, along with credit investigations started by somebody besides you won’t be used as a factor in determining your insurance score. Things not used in determining an insurance score also include a person’s income, their race, national origin, as well as how old they are, their gender, if they are married and their address.

There are numerous companies which produce credit-based insurance score reports used by insurance providers. For instance, FICO delivers these characteristics to insurance providers when they are asked for someone’s insurance credit score:

Payment History- 40 percent
Unpaid Bills – 30 percent
Length of Credit History – 15 percent
Amount of New Credit Requests- 10 percent
• Mix of Credit Accounts, i.e. kinds of loans, type of credit cards, revolving debts, etc. – five percent

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