What is an Insurance Score?

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Insurance companies have become very sophisticated in how they gauge the risk of their customers, using tens and sometimes hundreds of different rating factors to determine the final premium you pay. One of the leading factors they use is your credit scores. Undoubtedly, you’ve heard of credit scores and their importance; however, did you know that there are multiple scores compiled by different organizations? And did you know that there is a credit score specifically used for calculating your insurance rates called your Insurance Score?

Your Insurance Score is its own separate score, different from your credit scores from FICO, TransUnion, or Equifax. Typically, there will be a correlation between your Insurance Score and your other credit scores, since similar financial information factors into your Insurance Score. However, the difference comes from the additional information included from the Automated Property Loss Underwriting System (A-PLUS) and from the Comprehensive Loss Underwriting Exchange (CLUE). These national databases are used by U.S.-based Personal Automobile and Homeowner/Renter insurance providers because they have information on nearly all claims that have occurred.

What Information Do A-PLUS and CLUE Have?

For better or worse, A-PLUS and CLUE have up-to-date information on where you live, what cars you own/lease, how long you’ve been with the same insurance company, the insurance limits you currently carry, and more! All of these play a part in your overall Insurance Score, combining your creditworthiness, your claims history, and the other periphery information gathered by A-PLUS and CLUE. Like your other credit scores, the higher the score, the better. So, with your Insurance Score, the higher it is, the lower the premium you’ll pay.

How Do I Increase My Insurance Score?

Beyond working on increasing your other credit scores, which will automatically increase your Insurance Score, you can do the following things:

·         Since your claim history affects your score, you should increase your deductibles as high as reasonable for your current financial situation. This will be different for everyone, but a good rule of thumb is to increase your deductibles to the highest amount of extra cash you typically have on-hand. This is so when something bad happens, you won’t have to take out a loan or carry the expense on your credit card.

·         Since the length of time with your current carrier affects your score, try not to switch insurance carriers more often than every 3 years. While there are certainly justifiable reasons to switch before the 3 years is up, the optimal longevity to have with a company is 5 years.

·         Since the insurance limits carried affect your score, and because driving is the most dangerous activity the average person does, do not carry your state’s minimum liability limits on your Auto insurance. As of the time of writing, our agency doesn’t offer any limits lower than $100K per person, $300K per accident, and $100K of property damage, and we consider this the bare minimum amount of coverage.

How Do I Save Money Right Now?

As previously mentioned, each company compiles different data to calculate rates, and each company compiles that data differently. So, when it comes time to shop your insurance (again, hopefully after about 5 years with the same company) it is recommended that you get a few quote options from reputable, financially stable insurance companies. Your local Independent Insurance Agent can go to the market for you!

Why Do Insurance Companies Use the Insurance Score?

The Insurance Score was created with the intention of finding a way to quickly and accurately gauge the likelihood of a person having a claim. Insurance Scores are still around because they work—insurance companies have found a clear connection between a bad Insurance Score and an increased likelihood of that person having a claim! Despite the accuracy of the Insurance Score, some states find Insurance Scores discriminatory, particularly towards lower income folks. Consequently, California, Massachusetts, and Hawaii prohibit insurers from using Insurance Scores to determine premiums. Arguably, because Insurance Scores are prohibited, the average insurance consumer will pay more for insurance coverage in these states.

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Colten Zamrzla, CPCU

Colten first started in the insurance industry in 2010. He then pursued a Bachelor's degree in Finance & Insurance from the University of Nebraska at Lincoln. Once graduated, he immediately started studying for the CPCU and achieved it in just shy of a year. He is solely focused on commercial insurance, able to assist all types of businesses and nonprofits in risk management.

Colten has dedication and passion for his clients and the insurance industry as a whole. He dedicates time to furthering his knowledge on all things business and insurance, and he volunteers for the Independent Insurance Agents of Nebraska, a state-based trade association.