Most people know they have a consumer credit score, but few
realize there is a similar ranking used by auto and
property insurance companies to rate a customer's potential
liability and it is key to getting affordable auto
insurance.
Fittingly, this is called an insurance score, but it takes
into account more than just how promptly you pay your
bills. It also incorporates data such as how many claims
you've made on past policies, how frequently and how costly
they've been to previous insurers.
This score has a dramatic impact on the cost of your auto
and property insurance premiums. According to Robert
Hartwig, president and founder of the Insurance Information
Institute (www.iii.org), a nonprofit agency designed to
help consumers with insurance questions, "These scores are
basically credit information that an insurance company uses
from your credit profile, but they then take that and
relate it to actual information regarding your claims
history or your legal history."
In other words, do you have a habit of suing people? Fair
or not, those things factor into your insurance score.
There's almost nothing you can do about it, other than keep
your credit in tip-top shape and try to avoid making
multiple claims.
"People with poorer credit tend to be associated with
relatively higher losses to insurance companies," Hartwig
says. "That group . . . can incur more claims or more
costly claims, or both."
Hartwig says this is different than a credit score because
of the manner in which information is used. "Insurance
companies don't need all the information that's in a credit
score. The insurer only takes information that correlates
with what it needs to determine. They're looking to
maximize the correlations between credit information and
loss information. If [people] tend to be financially
responsible, they tend to not be reckless behind a wheel,
they tend to maintain their homes, things like that."
Perhaps the most interesting thing about insurance scores
(and the most disconcerting) is that you can't change
them—at least, not in the short-term—because
your ranking factors in cumulative information over a
period of years. Moreover, you can't find out what your
score is because each company considers the method by which
it ranked you to be proprietary.
"You can't find out because each company makes their own
insurance score," explains Jeanne Salvatore, senior vice
president of public affairs at www.iii.org. "Each insurance
score also uses credit differently—some might just
use it in applications and some give it greater weight than
others. Underwriting (how a company determines who to
insure and for what price) is very proprietary. That is how
insurance companies compete—by being able to price
the product better than the next guy. If they gave that
away (how they rank individuals) they'd be giving away some
part of their trade secrets."
So, what exactly can a person do with this new fact of
insurance scores? Is your collision coverage too high
because of it? Why do you need high risk car insurance?
"As a consumer, what you should be doing is shopping
around, shopping for a good rate, because that ultimately
is what you want to do anyway," Salvatore says.
And it's the best way to ensure you get the most affordable
auto insurance possible.
That and drive safely!
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Ryan Patterson is president of US Insurance Online, based
in Austin, TX. He graduated in 2000 from the University of
Texas with a combined business and computer science degree,
and started US Insurance Online in May of 2005 with fellow
entrepreneur Jim Waltrip. Visit
http://www.USInsuranceOnline.com for help shopping for
insurance and for free insurance quotes.
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