Insurance scores have statistically proven to be a good predictor of future losses, and so insurance companies use them along with a number of other factors to evaluate new and renewal insurance policies
Who issues insurance credit scores?
There are many different types and versions of insurance scores. Companies like ChoicePoint build insurance scores for the insurance industry, and so do Fair Isaac (the inventor of FICO credit score). Many insurance companies have their own proprietary credit scoring system.
Does having an excellent FICO score means that my insurance score is excellent as well?
Since insurance scores predict future insurance losses while credit scores predict creditworthiness, these scores are very different and are not necessarily correlated. There may be items on your credit report relevant to a credit score but not relevant to an insurance score.
Does having good insurance score means that I qualify for the best insurance premiums?
While having a good insurance score certainly contribute toward improved terms, insurance companies consider a number of other factors when determining your terms and premiums.
For example, your driving record, prior loss history, vehicle type, age, sex and place of residence may affect your auto insurance more than your insurance score will.
Similarly, prior loss history, construction type, distance to fire stations and fire hydrants, and presence of smoke detectors and alarm systems as well as state regulations may affect your homeowner insurance.
Additionally, information from national databases such as the Medical Information Bureau or the ChoicePoint’s CLUE database may be affecting your insurance terms as well.
Is Insurance Scoring Unfair?
Because insurance companies do not disclose any information about their scoring system, there’s room for abuse. Some argue that scores are not based on anything but smoke and mirrors, and that they’re used to discriminate against some segments of the population.
Numbers of studies have shown that indeed, the lower income families and some minority groups seem to suffer from insurance scores more than higher income ones. Other studies have found no discrimination, so the results are not clear cut.
Regulators have also looked into insurance scoring to see if there are any signs of discrimination, but have not announced that the scores are unfair.