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Car Insurance

A Blog About Driving and Car Insurance in the USA

Friday, January 27, 2006

The Lowdown on Insurance Scores

If you've ever wondered how car insurance scores work, then today's press release will probably interest you:

"Along with goals and resolutions, the new year also signifies renewal time for auto insurance policies across the nation. And this year, more consumers are apt to notice that insurers are looking at more than just their driving record when determining new premiums.

InsureMe, the consumer-agent link for finding insurance online, is lifting the veil on credit-based insurance premiums in efforts to help consumers find more affordable car insurance.

According to a study by Conning and Company, 92% of the company’s 100 largest auto insurers are now incorporating credit into car insurance premiums. As a result, consumers with bad credit are paying anywhere from 20% to 50% more for auto insurance than consumers with good credit.

Although insurers look at a consumer’s credit score, they use it in conjunction with the credit history to determine an insurance score. The insurance score quantifies how consumers have used their credit in the past. It’s calculated in a way in which positive factors offset negative factors—meaning no specific item can keep a consumer from receiving a good auto insurance rate.

Critics of the insurance score maintain that credit-based rating is just another excuse for insurers to increase insurance premiums. Many critics also fault credit-based scoring because insurance companies can create their own model by which to determine insurance scores.

Insurers disagree—and they have the stats to back it up. Recent studies by insurance-related research firms found that drivers with poor credit file 40% more claims than their clean credit counterparts. Insurers also maintain that using credit to determine auto rates is a good thing for drivers: the Insurance Information Institute recently found two-thirds of policyholders have a lower premium because of good credit.

To help attain a fair car insurance rate, InsureMe recommends requesting a credit report to ensure that it doesn’t contain errors that could negatively impact insurance rates. In addition, the company encourages consumers to pay bills on time, lower the amount owed on existing balances and obtain multiple quotes from different insurers to find the best deal."

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