When it comes to borrowing money, you most likely are aware that your credit score is a major factor for what a lender offers. An insurance score, however, is a term that isn’t so well known, even though this particular number can play a very big part in how much you’ll be charged for insurance coverage over time.
Insurance scoring is a model, developed by your insurance company — all companies have unique models — that determines a customer’s likelihood of experiencing future insurance claims based on his or her financial behaviors.
Smart Business spoke with Kevin Franczkowski, client advisor at SeibertKeck Insurance Agency, about insurance scoring, shedding light on this misunderstood facet of insurance.
How does an insurance score affect rates?
The scoring is based on the analysis of a consumer’s credit report information. The models are based on actual claims history of consumers with similar financial behaviors.
These models use predictive characteristics to anticipate possible loss, and it will greatly affect your rates for your insurance policy, whether it is for health, homeowners, auto or life insurance. The better your score, the better your rates.
An insurance score typically ranges from 200 to 997. Scores that fall below 500 are generally considered to be poor, while anything above 770 is considered good, according to InsuranceScored.com.
Very few individuals possess a perfect insurance score, although it is possible to obtain.
Is an insurance score the same as your credit score?
No. Your insurance score is not the same as your credit score.
Your credit score is used to predict your future credit behavior. Your insurance score is used to predict the possibility of future claims. The difference is very important to remember.
Your insurance score does not measure your income, and these scores are just one aspect of underwriting and rates.
Insurance scoring enables your insurance company to make better risk selections and develop more accurate pricing, helping you to save more money.
What factors affect your insurance score?
The factors that are evaluated and used to determine your unique insurance score can include, but are not limited to:
- Outstanding debt.
- Length of credit history.
- Late payments.
- New requests for credit and the length of time since the most recent credit inquiry.
- Your number of open accounts.
Personal information such as age, gender, income and address are not used to determine your unique insurance score.
How can you improve your insurance score?
There are several ways to improve your insurance score. They include paying your bills on time, re-establishing good credit and keeping a watchful eye on your available credit. And keep in mind that your most recent history is more important than past years.
Maintaining a good insurance score by keeping your overall debt down and by filing fewer claims over a certain period of time, generally based on a three to five year time frame, also will help keep your premium down.
After a catastrophic loss to your home, such as a fire, your insurance company may essentially restore you financially, so you can focus on the things that really matter: your family, your home and surviving an emotional crisis.
Insights Business Insurance is brought to you by SeibertKeck