Insurance companies run credit-based insurance scores as part of their assessment process because these scores are seen as indicators of an individual’s financial responsibility and potential risk. Studies have shown a correlation between credit-based insurance scores and the likelihood of filing insurance claims. Individuals with lower insurance scores are statistically more likely to file claims, which can lead to higher costs for insurers. By using insurance scores, insurers aim to predict and mitigate potential risks, ensuring that they can set premiums that accurately reflect the likelihood of future claims. This practice allows insurers to price their policies more effectively, offering lower premiums to those with better insurance scores who are perceived as lower risk, while charging higher rates to those with lower scores to account for the increased likelihood of claim activity.
It is important to note that these companies use credit-based insurance scores rather than traditional credit scores, which means requesting an insurance quote will not hurt your credit score. An article on FICO.com provides a more detailed explanation of the differences between a credit score and an insurance score. Please click HERE to learn more.
Understanding how insurance companies utilize credit-based insurance scores can help consumers navigate the insurance landscape more effectively. While these scores are a tool for predicting potential risk, they also highlight the importance of maintaining good financial habits, as credit scores can influence not only loan rates but also insurance premiums. Insurance companies do offer exceptions to credit-based insurance scoring if you were the victim of identity theft or another qualifying life event, please click HERE to learn more. By leveraging credit data, insurers can offer more accurate pricing, rewarding financially responsible individuals with lower premiums. For more insights into how insurance scores differ from traditional credit scores, be sure to check out the detailed explanation on FICO.com.
