Insurance Risk Scores vs. Credit Reports

When determining what price to offer for homeowners or auto insurance, insurance companies attempt to predict the probability of future claim activity. Insurers use every available tool to help them in this process so that a consumer’s premiums are appropriate relative to the risk they represent. One tool that is very useful is an insurance risk score — a simple number or category based on an analysis of certain credit characteristics and past claim information. Even though this score is based in part upon credit information, it is nothing like a credit report.

An insurance risk score is automatically generated by a model purchased or developed by the insurance company. When an insurance agent or representative from a company that uses insurance risk scoring receives the score, they do not typically use or even have access to the consumer’s credit report.

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