What You Need to Know About Auto Insurance Scoring

What is an insurance score?

Insurance scores are numerical ratings developed from certain attributes of a person’s credit history. For example, an insurance score considers primarily:

  • New applications for credit
  • Amount of outstanding debt
  • Types of credit in use and length of credit history
  • Payment history
  • Bankruptcies
  • Collections

Insurance scores take into consideration only those characteristics from a credit report that are relevant to predicting loss potential. While paying your bills on time has an impact on your insurance score, other factors like the amount and frequency of credit usage also influence your score.

An insurance score does not take into account:

  • Income
  • Race
  • Gender
  • Religion
  • Marital status
  • National origin
  • Geographic location

How does an insurance score differ from a financial credit score?

When evaluating a person’s credit information to determine an insurance score, an insurer only considers those items from credit reports that are relevant to insurance loss potential. Both an insurance score and a credit score are derived from the same thing: a credit report; but they are distinctly different.

The main difference between an insurance score and a credit score is that insurance scores do not take into account a consumer’s income. Unlike a mortgage company, an insurance company is not assessing a customer’s credit-worthiness and therefore doesn’t consider income. Instead, an insurance company only considers those items on a credit report that will indicate future loss potential.

We recognize that people sometimes face difficult circumstances in their lives such as job loss, medical bills or divorce. When we consider an applicant’s insurance score, an isolated instance of a late payment will not have a significant impact on your eligibility. We are looking at long-term patterns and overall responsible use of credit.

Similarly, applicants who use cash for purchases or who don’t have established credit will not be scored negatively.

Why do insurers use insurance scores?

Insurance scores provide an objective tool that insurers use along with other applicant information to better predict the likelihood of a consumer filing claims. Because insurers can better predict loss experience, consumers with favorable insurance scores can be better identified and pay less for insurance. Insurance scores also help to streamline the decision making process, so that policies can be issued more efficiently. By accurately predicting the likelihood of future claims, insurers can control their risk, enabling them to offer insurance coverage to more consumers at a fair cost.

Insurance companies use financial history, along with a host of other factors, to properly classify insureds according to their potential for future losses. Studies have shown a strong correlation between a consumer’s financial history and his or her future insurance loss potential. In fact, research indicates that insurance scores are among the three most important rating variables used by insurers. Insurance scores have been found to be a better predictor of future risk than driving records. Thus, insurance companies believe the insurance scores help them to underwrite and rate applicants at a cost that reflects their anticipated risk of loss.

Do all insurance companies use insurance scoring?

More than 90 percent of insurers use some form of insurance scoring. In addition to an insurance score, Erie Insurance also considers other underwriting factors. For example, your auto insurance premium is based on criteria such as your driving record, the type of car you drive and how far you drive. Your homeowners premium is based on the cost to replace your home and the distance to the closest fire department, among other factors. Insurance scores are just one factor Erie Insurance uses to determine your rate. Like all insurers, Erie Insurance cannot deny an applicant insurance coverage based solely on an insurance score.

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