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Consumer Rating Scores

March 1, 2021

What is an Insurance Consumer score?

We all know the importance of a good credit score. It is an incredibly important factor when it comes to applying for a loan for a house or a car, and what kind of interest you'll end up paying.

It is increasingly becoming more and more important to have a good credit score in this day and age, but, believe it or not, it's not the only score that you should keep your eye on. In most recent years, major retailers and other service providers have been relying on a new type of score called the so-called "secret" consumer score (not so secret I guess) to guide their interactions with customers.

These scores -and how they're calculated- is quite a mystery to most consumers, insurance agents, and underwriters alike. But they can determine everything from the price you pay for an item to how quickly their customer service will respond to a desired request. An insurance score is used by insurance agencies to correctly calculate the probability or likelihood of certain persons or individuals filing an insurance claim under coverage amongst other things. Scores are based off information from credit reports and your consumer history.

An Insurance company can use your credit-score as a factor in its underwriting process along with Insurance Consumer Scoring. With auto insurance, other factors that can come into play are: age of said operators, the make, model and age of your car, your annual mileage driven, how many claims you've had in the last 3 years, how many claims you've had in the last 5 years, it includes information such as when you pay your bills - are you someone who pays on time or misses the due date by a few days, also included are your zip code, how many losses have occurred in that zip code, it includes information on how many times you've switched insurance companies, and many other factors. There are about 160 different factors that come into play. No one persons score is the same as the next, even if it were your twin getting quotes on the exact same things, it's likely that your consumer behaviors vary meaning you each will get different price options for your insurance premiums.

What's in a consumer-based insurance score?

There are a few different companies that create credit-based consumer insurance score reports for insurers to use. FICO looks to have 5 different areas that they use to best determine how you manage risk. According to an article published by NAIC (National Association of Insurance Commissioners) they were able to breakdown the information that generally weighs in figuring your credit-based insurance score:

Payment History (40%) - How well you have made payments on your outstanding debt in the past.

Outstanding debt(30%) - How much debt you currently have.

Credit history length(15%) - How long you have had a line of credit.

Pursuit of new credit(10%) - If you have applied for new lines of credit history recently.

Credit mix(5%) - The types of credit you have (credit card, mortgage, auto loans, etc.).

Three things to remember:

  • Not all states allow the use of credit-based consumer insurance scores in determining premiums. Some states will only allow the use of credit based scores in the context of homeowners and auto. Some good advice would be to check your local state department to find out what the law in your state allows.
  • There are five different factors that are used to determine your credit-based insurance score: payment history, outstanding debt, credit history length, pursuit of new credit and credit mix.
  • You do have the opportunity to improve your credit-based insurance score. Be sure to make payments on time, pay your bills, taxes and fine/fees as agreed. If you end up becoming behind on payments, make sure to catch up. Keep your balances on your credit cards as low as possible.

How to get your insurance score?

Unlike credit reports, you are unfortunately not entitled to getting a free insurance score. The only way you can check is to call LexisNexis. The other two major companies do not provide those scores. But make sure that, before you call, you contact your insurance to get a reference number, otherwise you will get hit with a hard inquiry and your credit score will get affected.

Credit Karma recently started giving people a "guess-timate" consumer insurance score. The scoring they provide is like a novelty score, giving you some sort of reference to how your credit is affecting your rates based on your behavior in your credit history, but it is not your actual consumer insurance score that the insurance companies use. On the bright side, if you already know you have a really good credit score then most likely you won't have to check your insurance score because you are likely getting great rates.