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A person’s insurance score is similar to a credit score as it’s used to determine risk when issuing a policy just like a credit score is used in the determination of the risk of issuing a loan. Basically it’s a process of risk assessment as to a persons’ premium payment or sometimes if a policy will be issued at all.

The correlation is the higher your insurance score is the lower you are in terms of risk which not only will get you a policy but a lower premium on your policy as well as with your lower risk assessment score you’ll be less likely to file a claim. The insurance company is betting on your likelihood of never having to file a claim and they’ll just be collecting your premiums without having to payout on your policy.

If you’re determined a high risk individual based upon your insurance score and past history you’ll likely be paying a higher premium based upon that risk or directed elsewhere.

Determining Insurance Score

The determination of your credit score is somewhat of an insurance industry secret. Although there are outside agencies that will calculate insurance scores the insurance companies themselves use an internal scoring system in which to assess and give an insurance score to policyholders and potential policyholders.

A person’s insurance score can be fairly subjective based upon the specific scoring system that is used.

Credit Score Correlation

Your credit score will play a part in the way your score is calculated. The person that does these assessments is called an insurance underwriter. The reason for this is the assumption that someone that has and keeps a good credit ranking/score the less of an adverse risk they are going to pose by issuing a policy.

The insurance industry relies heavily on statistics both on an individual basis but also on an overall. The insurance company makes its money on collecting premiums and investing the profits with the avoidance of having to pay out claims on written policies.

If the insurance industry has made the correlation between someone having a good credit score and their level of risk based upon that it is most certainly a proper correlation as this is the game they play daily to ensure quarterly and yearly profitability.

Insurance History

Past claims and insurance history are going to play a pivotal role in determination of your risk and your overall insurance score. Whenever you make a claim against your policy your score will is going to go down accordingly based upon:

• Filing the claim
• Type of claim
• Payout on claim
• Other

Should you be filing a claim or multiple claims and you are a new insured you’re going to have a much lower score than if you’ve been a long time policyholder with little claims history.

Additionally, if you are a new policyholder you’ll be assessed harder since there just isn’t enough information to go on to determine your specific level of risk. It’s akin to having to pay a higher interest rate on loans due to lack of credit not necessarily bad credit.

Other Factors

The specific item being insured can come into play. For instance, if you’re insuring your auto and it’s a type that is frequently stolen makes not you specifically but issuing your  policy a much higher risk than the next guy that has a car that is hardly ever statistically stolen.

Although this might not seem fair it’s the way the insurance industry works. Just like any other company they are not just in business to provide a service but to make money off of the provided service.