Insurance score

A rating computed and used by insurance companies that represents the probability of a client filing an insurance claim during his or her coverage. The score is based on the client's credit rating and will impact the premiums he or she pays for the insurance coverage - a higher score will result in lower premiums, and vice versa.

Investopedia Says:
Individual insurance scores are based on credit ratings because historical data reveals a positive correlation between poor credit ratings and insurance claims. A perfect insurance score represents a client with the lowest risk of filing a claim. Very few people have perfect scores; however, it is possible to have a very good score.

Related Links:
Discover what this mysterious rating is, how it affects your premiums and how to minimize its adverse impact. Insight Into Insurance Scoring
A look at the various components and considerations of the personal and financial data that go into this dossier. Consumer Credit Report: What's on It
Do you know how your borrowing activities affect your credit rating? Find out here. The Importance of Your Credit Rating
Social Security benefits can be hard to collect. Should disability insurance be a part of your financial plan? Protecting Your Income Source

An insurance score is a numerical ranking of a potential insured's financial status (usually credit history). Actuaries use these scores to determine risk, and charge premiums based on that risk.

Potential insureds who have low insurance scores statistically file more insurance claims and pay higher premiums. Conversely, potential insureds with better insurance scores tend to enjoy lower premium rates, as they are perceived to be less risky to insure.

Background

Insurance scores are based on information from credit reports and insurance claims data and are generated using a mathematical formula. Insurers consider credit information in their underwriting and pricing decisions as a predictor of the risk of loss. Various studies have found a strong relationship between credit-based insurance scores and risk of loss. Insurers consider credit information, along with other factors, such as driving experience, previous claims and vehicle age, to develop a picture of a consumer's risk characteristics.

Sources

• Insurance Information Institute Dictionary
• Federal Trade Commission Study

External links

• InsuranceScored.com - The truth behind Insurance Scoring
• Insurance Information Institute
• Consumer Reports August 2006 article about the use of credit reports for car insurance premium setting

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