Insurance Scores: What It Is (& When You Should Actually Worry)

all about insurance scores and how your carrier determines the rate you pay
If you’ve ever worried about your insurance score hindering your home or property coverage, this one’s for you. It’s not exactly accurate to say you should never worry about your score. While receiving the coverage you want hinges on it, some things just aren’t a big deal. But, there are certain factors you should be aware of. Here’s a quick rundown on what an insurance score is and the truth about what generally impacts your score.

What Is an Insurance Score?

Insurance Scores-When You Should Worry_ Why insurance scores are used Insurance scores are what carrier companies use to gauge the risk of insuring people who are seeking a specific policy. And, as you probably guessed, it’s all about the claims. The Business Dictionary defines insurance scoring like this:
The method insurance companies use to determine the risk of someone filing a claim. An individual credit score determines an insurance score because there is a link between poor credit and an insurance claim. A person with a higher insurance score has a lower premium than one with a low score.

What Determines Your Insurance Score

The essential goal of insurance companies is to obtain clients with lower risk factors. In that respect, insurance scoring is an incredibly accurate way to measure the likelihood carriers will be responsible for your claim. The risks used to calculate an insurance score correlate strongly with a wide range of variables. These variables differ greatly by provider and the type of policy an individual is seeking. In other words, carriers offering auto, life, home and property insurance policies will measure different risk factors for each of those policy types. Bobby Patel, the manager of TGS Insurance Agency, a BillAdvisor company, breaks down the three main elements used by most home and property carriers to calculate insurance scores:

1. Previous Carriers

how previous insurance carriers affect your insurance score For auto insurance scoring purposes, you’ll be rated differently based on who your previous auto carriers were. While certain insurance companies look at the brand of carrier, most simply consider whether you had a standard or non-standard auto insurance provider. So what do these terms even mean? Basically, they’re a way to generalize auto insurance policies based on the forms they’re written on, as well as the types of insurers that sell a lion’s share of these policies. Let’s take a look at the two categories:
  • Standard– Customers who choose standard insurance often fit an insurer’s ideal profile. They’re believed to reduce the company’s exposure to risks requiring payouts. Good credit scores, prior and stable insurance history, and other factors are used to match individuals with standard policy options.
  • Nonstandard– This type of coverage is often for drivers who have complex insurance needs, or who are considered difficult or very risky to insure based on carrier-specific targets. There’s no hard-and-fast rule regarding nonstandard insurance policies or companies; they can cost either more or less than their standard counterparts.
Need homeowners insurance for a new dwelling? You’re in luck. Previously having a standard or nonstandard carrier isn’t usually considered as part of your score. Simply having past coverage is what counts for homes that aren’t brand-new! When You Should Worry: You don’t have much to worry about unless you have substantial gaps in coverage or cancel frequently, or if you have a history of late payments. Sometimes having insurance through standard or nonstandard companies can greatly influence the rate you pay, too.

2. Insurance History

how prior history of insurance affects your insurance score Having a prior history of insurance also contributes to your score. The longer you’ve had previous insurance with the same carrier, the better! When You Should Worry: Here’s what you should consider to avoid getting worked up for nothing…
“Are you keeping your insurance in place for a long period of time, or are you a frequent canceler? Do you pay your bill on time? Is [your insurance] with a good quality company?”

3. Personal Credit Score

how your credit score affects your insurance score What type of risk assessment would be complete without one of the best predictors of responsibility out there? That’s right, your credit score is another major component that carriers use to calculate how likely you are to be involved in a future claim. Obviously, better credit scores yield better premiums from insurers. Favorable and unfavorable indicators are given specific weights (which also vary somewhat by carrier). Generally speaking, however, a higher credit score will indicate a lower likelihood to file a claim for carriers who have the final say. Luckily, credit scores are just one of many factors in calculating insurance scores — but virtually all carriers weigh it. When You Should Worry: Most people have credit scores within the decent to excellent ranges, so this isn’t much to worry about. You can relax if your credit score is below the current national average, if you don’t have a credit history, or if you have valid concerns about the strength of factors #1 and #2 above.

The Link Between Claims & Insurance Scores

how insurance scores and claims are linked According to Bobby, most people usually don’t err on the side of caution, and assume they’ll get the coverage they’re applying for. “We’ll ask if [applicants] have a claim, and most people confidently say no.” Here’s why he says they’re often very surprised to find out that they do, in fact, have a record of insurance claims. “A lot of people don’t realize what constitutes a claim.” Quick fixes for major inconveniences (like getting locked out of your vehicle, getting towed for a flat tire or dead battery, and even calling just to ask about reporting property damage) can all be considered claims by your provider. What’s the reason for the confusion among so many policyholders? Bobby attributes it to the fine nuances of communication.
“Many policyholders are inadvertently told that some of these services are free. While they are free of charge to you, your insurance carrier still has to pay. Think of it this way: if they pay, you pay… through higher premiums.”
  The worst part? “Insurance companies can and will drop policyholders for using it too often within a certain time period.” When You Should Worry: Although specific claim limits vary by the carrier, Bobby advises not to stack up more than 3 claims in a year. Doing so can drive up your rates and negatively impact your insurance score, making comparison shopping for quotes more stressful.

What to Do Before Filing a Claim

What to Do Before Filing a Claim Calling your insurance carrier to simply ask if an incident is claim-worthy can be listed as a zero-dollar claim. While the very occasional question won’t come back to bite you, multiple zero-dollar claims look like ticking time bombs to most carriers. That means your rates will ultimately increase the rates you pay. Instead of calling the company at the first sign of trouble, Bobby suggests taking a step back.
“If you’re not really sure if something constitutes a claim, call your agent instead of your carrier and talk to them about it. As your agent, they’ll advise you if it’s not worth [filing] a claim.”

Why Insurance Companies Deny Coverage

Insurance Scores-When You Should Worry_ Why insurance companies may reject you or give higher deductibles So, how do insurance companies determine whether or not to accept an applicant?
“Every company has their own set underwriting. For instance, on the home side — location is a factor, age of dwelling, prior claims, things like that — so based off that criteria, we know where to place it. Some carriers like newer homes, some prefer older homes, some don’t care either way… By working with the carriers, we know where to place the risk. We can pretty much cover any property that’s been maintained.”
Quality brokers and agencies who have great relationships with their insurance partners can often get sweet privileges that extend to clients. Take TGS Insurance Agency, for example, which can now offer exclusive discounts and longer policy terms after recently achieving Platinum Progressive® Partner status.

Wrapping Up

Despite the fact that insurance score calculations are fiercely guarded by carriers, having a poor score equals hefty deductibles. That makes for a major headache when you’re shopping around for the best insurance quotes. Knowing when you should (and shouldn’t) worry can help you reduce your risks and improve your insurance score.

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