Insurance score
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
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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