Twenty years ago, if you told me you just bought a new car or house, I could’ve guessed your insurance premium within a few dollars – no computer, no fancy algorithms, just good old-fashioned experience. Those were simpler times.
Today? Not a chance. Insurance companies now use a mountain of data and technology to decide what to charge. The biggest game changer? The creation of the insurance score – a mysterious cousin of the credit score that quietly influences home and auto insurance prices. It gets mysterious because every insurance company has its own insurance score algorithm that they consider to be a competitive advantage. They don’t like sharing the details!
Insurance score algorithms use a lot of information used by credit scoring algorithms: payment history, credit balances, collections, bankruptcies, and more- but the recipe is different. A credit score predicts how likely you are to repay a loan; an insurance score predicts how likely you are to file a claim. The effectiveness of insurance scoring has been proven over time and is supported by state insurance regulators. It’s not going away anytime soon.
Is anything haunting your insurance score? Late payments, collections, and bankruptcies top the list of things that lower your score the most and hang around the longest – as long as seven years or more. You can keep tabs on your credit information- and indirectly your insurance score – by getting a free report from one of the big three: TransUnion, Equifax, or Experian. It’s a free service and is easier to do than it sounds! It’s not common, but occasionally, there’s an error with the big credit database in the sky.
If you’re in the “top tier” of insurance scores, congratulations – you’re already getting a solid deal! However, insurance companies seem to change their appetite more frequently for people in the middle or bottom tiers of insurance scores. Asking your insurance agent to shop your insurance every couple of years until your insurance score improves could be a good strategy for you.
Contact your insurance agent for a good conversation about your insurance score and the impact it’s having on what you pay for insurance!
