Most of us have a basic understanding about our credit scores and how they can impact us but many may not know what an insurance score is. An insurance score is a metric used by many insurance companies to determine the claim risk of a prospective policyholder, in other words how likely you are to file a claim. The insurance score is typically based on three factors: (1) credit score, (2) number of prior claims and (3) prior payment history. But just as the three big credit scoring agencies (Experian, Equifax & TransUnion) use different rating factors, each insurance company’s insurance scoring can be calculated differently as well.
So as an example, if John and Sally both have an 800 credit score but John has had 2 claims and Sally has had no claims, then Sally will have a higher insurance score and will be offered a more favorable insurance premium. Same goes for payment history, if John has had perfect on-time payment history and Sally frequently pays her premium late, then John will have a higher insurance score.
Insurance companies use many different factors to determine insurance premiums and the insurance score is just a piece but it can have a significant impact on both the positive or negative side.