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What goes into an insurance score?

Almost every insurance company today uses an “Insurance Score” to determine the premium you pay for home, auto and even commercial insurance in some cases.  Let’s discuss what’s in an insurance score and how it affects your premium.

An Insurance Score is a number on a scale that determines your likelihood of having a claim based on financial data available to insurance companies.  The scale varies but the score is very similar to a Credit Score.  It uses similar information such as number of accounts opened in the last 12 months, number of accounts currently or in the past with 30+ day late payments, number of consumer initiated inquires in the last 24 months, time since most recent revolving credit account established, etc. but it will weight this information differently than a credit score.  Each company has their own insurance score formula so they can vary drastically between companies when comparing premium from one insurance company to the next.  In general, the higher your score the better your premium will be.  Some companies even use a letter system over a number system for your score.  Sounds simple right!?  Just call your agent up and have them explain it.  They’ll love it!  Even for us agents, it’s not simple or straightforward.

Why do insurance companies use insurance scores?  Mostly just to confuse you into paying more premium right!?  Well, no.  The answer is to actually develop a premium that is accurate for YOU.  Not your neighbor or your sibling or your parents but for YOU.  I know what you’re thinking and you are correct that this doesn’t always mean lower premium.  However, it’s an attempt to make the premium more appropriate.

We live in the world of Big Data.  Everywhere you turn companies are gathering information on you to predict what purchasing decisions you’ll make so that they can be there when you want to purchase a product or service they sell.  Hi Google!  Insurance companies are no different.  Insurance companies base the premium they charge you on a huge amount of data they have collected on people like you, houses like yours, cars like yours, etc.  Insurance Companies take all of this information and compare it to their claims experience as well as the industry as a whole.  This then helps them determine if people in your city, town, neighborhood or block have more claims than the next city, town, neighborhood or block.  It’s the same thing with the type of car you drive, your driving record, your previous claims history, your education/occupation and of course, your insurance score.  This is why people with claims or driving violations pay more premium.  The data says they are more likely to have a loss.

So how is all of this data for people like me and stuff like mine used to determine a premium for ME?  Excellent question!  The more data points an insurance company has for you the closer they can get to narrowing down what your premium should be.  In short, there’s only one person that lives on your block, drives like you, drives the car you do, has the education and occupation you do, has the same house you do and here it is again, has the insurance score you do.  If you and your neighbor had the same house, car, job, education, driving record and brush your teeth at the same time, you’re weird and one of you should change something.  Besides that, you will not have the same insurance score, birthdate or some other factor.  Therefore, you will not pay the same premium.

Ok, so what does this actually mean for you?  Well, the insurance score can make a dramatic difference in the amount of premium you pay.  We have a client whose insurance score decreased about 90 points after applying for several loans and taking out a credit card.  This client has two homes, an umbrella and auto insurance with us.  The overall premium for the client’s policies increased over $700!  Now that’s dramatic.

The next logical step everyone then thinks is: How can I improve my insurance score?  Well, it’s much the same as the steps you would take to improve your credit score.  Do not have too many credit accounts open, do not open too many within a 12 month period, do not miss any payments, maintain accounts that you have had open for a long time even if you aren’t using them and do not max out your credit limits even if you pay them off monthly.  In short, maintain good credit practices and be patient.  It is easy to reduce your scores and hard to increase your scores.  Once you get your score where you want it, be careful to protect it and keep it high.  There are a number of resources online as well to help you understand credit and what you should do and not do.  These will all help with your insurance score as well.

You can also dispute your score if you believe it is incorrect.  You can also just inquire to see what makes up your current score.  Contact your agent to get the information on whom to call to get this information and resolved any potential disputes.

If you have more questions or are concerned about how your policies are affected by your insurance score, contact the Frederick Agency today at 419-732-3171.  Our staff will discuss any of these issues with you and are more than happy to develop an insurance program that will fit your needs, whatever you score is.  We’re here to help!

By Brennan Madison

Posted 5:00 PM

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