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What You Need to Know About Insurance Scoring

An insurance score is one of the variables that many insurance companies use to help calculate a customer’s rate for insurance coverage. Sometimes Customers ask us about insurance scoring, so we wanted to share some helpful information.

What is an insurance score? Why do companies use insurance scores?

Insurance scores are numerical ratings that are based on a range of factors, including your credit history. Insurance scores can help insurers assess risk when writing and rating policies—a fact that often works to the advantage of consumers with good credit histories.

For instance, with auto insurance, if the predictors indicate there is an 80 percent chance that a driver will have an accident in the next three years, then the insurer will charge that person a different premium than the insurer would charge someone who, according to the available data, is far less likely to have an accident. Considering the estimated risks can be a fairer way to price.

In addition to an insurance score, other underwriting factors are included in Erie Insurance’s calculations. 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, the distance to the closest fire department and other factors.

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

An insurance score and a credit score are distinctly different, but they’re both derived from the same thing: a credit report.

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 creditworthiness, so income is not a concern. Instead, an insurance company uses some items on a credit report to assess risk.

While paying your bills on time affects your insurance score, other factors—like the amount and frequency of credit use—also influence your score. An isolated instance of a late payment will not have a significant impact on that applicant’s eligibility for coverage. Insurers 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. Like all insurers, Erie Insurance cannot deny an applicant insurance coverage solely based on an insurance score.

Your local ERIE agent is also a good resource to turn to for answers to questions you may have about your insurance rates and protection. Get in touch with your agent today.