I see this in my office rather often. A prospective client walks through the front door, inquiring if we can provide him with auto insurance quotes. He will sit with Cindy, our Marketing Executive and begin providing information so that she can find him a fair rate from the dozens of insurance carriers we offer.

As proper documentation is presented from the client: driver’s license, copies of old auto insurance policies, Defensive Driving certificates from safety classes; Cindy will begin asking a series of questions that she feeds into the computer to receive comparative rates from different insurance carriers. Once the rates are received, she will discuss with the client,  the rates that were quoted and the associated coverage for each.

People are often blindsided by rates and do not understand how the premium was reached by each carrier. Often they will remark that they have an impeccable driving record …. No tickets, no claims, no accident, and that is entirely possible and it is factored into the equation.  But there are other factors that determine how much you are going to be charged for your auto insurance and increasingly, your consumer credit rating is a significant element.

Spokesman Mike Barry of the Insurance Information Institute, an industry trade organization, stated that most people "probably don't know" that their credit-based insurance score — it's based on the conventional credit score, — factors into rate calculations.”

Your insurance credit score is calculated from information on your credit report. Credit information is very predictive of future accidents or insurance claims, which is why most insurance companies use this information to help develop more accurate rates.

According to a recent survey by Conning & Co., a Hartford, Connecticut-based insurance research firm, 92 percent of all insurance companies use credit information when underwriting new policies.

"It's justified," Barry said. "Insurance regulators in 47 states have looked at and have agreed with our actuaries that customers with lower credit-based insurance scores are at higher risk of filing claims. And estimating that risk is how companies set their rates."

  • In 2003, The University of Texas  conducted an analysis based on 175,647 policies. They found that those with lower credit scores tended to incur more car insurance losses and higher claims payout, and thus posed greater risk to auto insurers.
  • The Federal Trade Commission  also undertook an independent study to understand the relationship between credit history and risk. Like The University of Texas, they found that credit-based insurance scores are effective predictors of risk.

Here is the good news. Using credit rating as a factor in gauging the rates insurance companies set as individual premium has led to many consumers saving on their auto insurance rates. It has supported an exemplary driving record to make the consumer appear as less of a liability or risk, which equates to an affordable rate.

If are looking to improve your insurance score, some factors will come with time, for instance, the length of your credit history. However, there are some general ways to improve your score, including: paying your bills on-time, avoid carry high balances on your credit cards, and not applying for too many credit cards.

And remember, the first step in finding an affordable insurance policy that won't break the bank is to work with an independent insurance agency that has relationships with many different insurance carriers. By comparing different rates against your insurance needs, an independent agent will be able to find the carrier and policy that is the best fit for your needs at the most competitive rate available.

Have any questions concerning your insurance policies and how the insurance industry works, feel ree to reach out ot me at Warwick Resource Group through my assistant (dbrozowski@warwickresource.com) and I will be happy to answer your inquires.