Q and A on Insurance Scoring

By November 30, 2010 October 2nd, 2018 Auto Insurance, Credit Score

1. What is an insurance score? How does it differ from a financial credit score?

An insurance score results from a credit-based statistical analysis of a consumer’s likelihood of filing an insurance claim within a given period of time in the future. This data can help Agents and underwriters better assess risk exposure prior to granting insurance coverage.

A financial credit score results from a credit-based statistical analysis of a consumer’s likelihood of paying an installment loan (mortgage, auto loan, etc.) or revolving debt (credit card, etc.) when due. Creditors use the score to help determine whether to grant credit.

In order to correlate insurance score to claims activity, an applicant’s insurance score is compared to the performance of a group of consumers with profiles similar to the applicant’s. A mathematical formula, or algorithm, assigns various weights to factors in the credit report in order to produce an insurance score, which is then used to determine eligibility for insurance or the appropriate price. The score predicts the likelihood of certain events occurring in the future.

2. What information is contained in an insurance score?

Identifying Information – Name, current and previous addresses, social security number, telephone number and date of birth

Credit History – History of satisfying obligations to retail stores, banks and finance companies and mortgage companies

Public Records – Judgments, foreclosures, bankruptcies, collections, tax liens and garnishments

Inquiries – Identifies credit grantors or other authorized parties that have received a copy of the consumer’s credit report, typically during the previous two years. Also lists companies who received consumer information for the purpose of offering credit or other promotions

3. What variables are used in calculating an insurance score?

Variables that are primarily used in calculating an insurance score include: outstanding debt, length of credit history, late payments, new applications for credit, types of credit used, payment patterns, available credit, public records and past due amounts. A credit report typically contains both positive and negative information.

4. What variables are NOT used in calculating an insurance score?

Race, color, religion, national origin, gender, marital status, sexual orientation, age, address, salary, disability, occupation, title, employer, date employed and employment history are NOT used for scoring purposes. Inquiries made for account reviews, promotions or insurance purposes are not used in calculating an insurance score.

5. Why do insurers use insurance scores?

Insurance scores provide an objective tool that insurers use along with other applicant information to better predict the likelihood of a consumer filing claims. Scores also help to streamline the decision making process, so that policies can be issued more efficiently. By accurately predicting the likelihood of future claims, insurers can control their risk, enabling them to offer insurance coverage to more consumers at a fair cost.

Insurance companies use financial history, along with a host of other factors, to properly classify insureds according to their potential for future losses. Studies have shown a strong correlation between a consumer’s financial history and his or her future insurance loss potential. Thus, insurance companies believe the use of credit information helps them to underwrite and rate applicants at a cost that reflects their anticipated risk of loss.

6. Will my premium change as a result of my insurance score?

For Private Passenger Auto policies, the insurance company uses items such as an applicant’s driving record in conjunction with insurance scoring to determine an applicant’s premium. An insurance score is just one of the many factors used to determine eligibility and pricing of the policy. Premiums on HomeProtector policies are unaffected by insurance scoring, at least in the state of MD.

7. If I have an existing policy and purchase a second policy, will I be scored? If my insurance score comes back negative, will my existing policy be cancelled?

When an existing Policyholder buys a second policy, the new policy will be scored. The score will not adversely impact the existing policy. The insurance company will not cancel an existing policy based on the insurance score for new business.

8. Who makes the decision to grant or deny insurance coverage?

Decisions about insurance coverage are made by the insurance company. Their underwriting guidelines take into consideration the following:

• application data;

• prior losses;

• motor vehicle records;

• CLUE reports;

• multi-policy vs. stand alone business; and

• insurance score.

9. What is the Fair Credit Reporting Act (FCRA)?

The Fair Credit Reporting Act is a federal law designed to promote the accuracy of information contained in consumer reports and to give consumers ready access to their reports in order to correct erroneous information. The Act specifies the permissible uses of information contained in consumer reports provided by consumer reporting agencies. In general, the FCRA provides that:

• Access to consumer reports is limited to those with a permissible purpose.

• Adverse information that is more than seven years old may not be reported, except in certain circumstances.

• A consumer must be told if information in a credit report has had an adverse impact on them.

• A consumer can learn what is in his or her consumer report(s).

• A consumer may dispute inaccurate items with the source of the information. (In the case of credit information, this is the credit bureau, not ChoicePoint.)

• Inaccurate information must be corrected.

10. Are insurance companies authorized to obtain a copy of an applicant’s credit report?

The protection of personal privacy and the responsible use of personal information are critical to both the insurance company and ChoicePoint. Only businesses or individuals with a “permissible purpose” may access a consumer’s credit report. ChoicePoint and the insurance companies comply with the mandate of the FCRA. According to the FCRA, ChoicePoint (as a consumer reporting agency) may furnish an insurance score to:

• A person or company that ChoicePoint has reason to believe intends to use the information in connection with the underwriting of insurance involving the consumer. This includes situations where the consumer asks for an insurance quote or applies for insurance.

• A person or company that ChoicePoint has reason to believe intends to use the information to review an account to determine whether the consumer continues to meet the terms of the account. This may be done periodically by the insurance company where a consumer already has coverage.

11. Are you sharing my insurance score with anyone else?

No. All information about an applicant, including the insurance score, are kept confidential. The insurance company does not sell or share information with other insurers or companies. It is the insurance company’s practice to protect the privacy of theirr prospects and insureds and act in compliance with all privacy provisions stated in the Gramm Leach Bliley Financial Services Modernization Act, 15 U.S.C. section 1681 et. Seq.

12. How do I know the information in my credit report is accurate?

Credit bureaus recommend that consumers routinely verify information found on their credit report and insurance score. For a fee of $12.95, consumers can access either their credit report or insurance score from ChoicePoint. To do so, consumers should log on to www.choicetrust.com. It is a good idea to review these reports once a year and verify their accuracy.

13. How can I get a copy of my insurance score and see my numerical score?

The insurance company is not able to provide an applicant with his/her numerical score. To view the numerical score, the applicant will need to contact ChoicePoint directly.

14. What if I don’t want you to order my insurance score?

An insurance score is a requirement in an insurance company’s underwriting guidelines and is necessary to complete the application. Without this information, the insurance company is not able to review the policy and extend coverage.

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