If you’ve ever had to take out a loan or are currently paying off a credit card, then you likely know all about credit scores. But what about insurance scores?
Just like how credit scores are used to predict the likelihood of you paying back a loan on time, insurance carriers use similar scores to measure your potential risk as a client.
At Berry Insurance, we often get questions about insurance scores from our clients, including what exactly they are, what determines them, and how it will affect your policy.
In this article we’ll break down all those questions and more regarding insurance scores!
What are insurance scores?
Insurance scores are three digit numbers that insurance companies use to predict the likelihood a potential new client is to file a claim - essentially using the score to measure if you would be a risky client for them to take on.
Insurance agencies, like Berry Insurance, would not use or even have access to this score, as it is exclusively utilized by the carriers to judge prospective clients. In fact, each insurance carrier uses their own unique algorithms to determine insurance scores, meaning your score will vary from carrier to carrier.
Most carriers will use your insurance score to decide if they want to insure you as a client or not, while some will also use the score to determine the cost of your insurance premium and whether they’ll consider your policy for renewal.
Having a higher insurance score means that the insurer will view you as less of a risk, and thus are more inclined to take you as a client. Conversely, lower scores indicate higher risk in insuring, meaning the insurer will be less likely to take you as a client or will charge you a higher premium.
Insurance scores are most commonly used for potential policyholders looking for auto or home insurance coverage. For homeowners insurance specifically, your score may dictate what tier of coverage a carrier will offer. Most carriers have different tiers or levels of coverage, and the better your score, the more likely you would end up in the higher tier.
Does credit score affect insurance scores?
Yes, absolutely.
Insurance scores are heavily swayed by your actual credit score, as insurers have seen correlation between low credit scores and a higher likelihood of filing insurance claims. The general belief being that those who pay back loans/bills on time and are generally financially responsible will also be responsible in other aspects of their life - thus being less likely to be involved in auto accidents or file claims on their home.
Although, while your credit score influences your insurance score, it doesn’t work the other way around. Meaning your credit score will not go up or down based on insurance factors.
However, not all states use insurance scores the same way
How insurance scores can be used will come down to individual state laws, with some limiting their use or prohibiting it entirely.
For example, in Massachusetts insurance carriers are legally not allowed to base their premium rates, the underwriting of a new policy, or their decision to renew a policy on credit based scores like insurance scores. However, this does not mean insurance scores are not utilized at all, as carriers may still judge whether they wish to work with a new client on their score.
The states that limit or outright ban the use of insurance scores include:
- California
- Hawaii
- Maryland
- Massachusetts
- Michigan
- Washington
If you are a Massachusetts resident, or live in the other states that don’t allow insurers to determine rates based on credit factors, the cost of your insurance policies will instead be influenced by other numerous factors that are important for you to be aware of.
If you’re currently shopping for car insurance, check out our guide specifically on what goes into determining the cost of your auto insurance. If you’re instead looking for home coverage, read through our list of the many factors that influence the cost of homeowners insurance.
How are insurance scores calculated?
As mentioned above, carriers will largely take your credit score into account when determining your insurance score.
However, this is not the only factor that will influence your insurance score. The full list of factors can include:
- Insurance claim history
- Your driving history, including any past accidents
- Payment history, or how often you make payments on time
- Your amount of outstanding debt
- Length of credit history
- How many different types of credit you have
- How often you’ve applied for new credit
- Any recent bankruptcies and foreclosures
But remember that carriers will calculate scores different from one another, meaning some may utilize other factors or prioritize some over others.
What is the range of insurance scores?
While also varying depending on the carrier, insurance scores tend to fall within the range of 100-999.
So scores on the higher range, being around 770-999, will generally indicate a good score and thus a less risky client. However potential clients with scores falling below 500 will be seen as a higher risk and may be the deciding factor of a carrier denying you coverage.
Can I check my insurance score?
When you receive a policy quote from an insurance company, you may be able to ask whether they used your insurance score in determining their decision or rate. Then you may be able to ask for more details regarding your score.
However, this will come down to the policies of the individual carriers, and it may be easier to instead access your credit score - which will likely make up a large portion of your insurance score.
How can I improve my insurance score?
The best way to improve your insurance score beyond being a safe driver is to try and build up a strong credit score. This can include:
- Making your bill payments on time
- Catching up on any outstanding debt and reduce your debt moving forward
- Avoiding new lines of credit until your current ones are paid off/debt free
Just a part of the quoting process
We understand that it can feel discouraging if you are denied insurance coverage based on factors you may not have control over from a score you don’t have access to. And believe us - we get it!
While your agent won’t be the one judging (or even seeing) your insurance score, we’re here to help you through the quoting process and walk you through all your options.
If you’re currently shopping around, download our personal insurance worksheet linked below to get a head start and know what information you'll need to prepare in order to get a quote.
