Why do insurance companies use insurance score discounts? Is it fair?
First, what is an insurance score? An insurance score is primarily made up of information often found
in a credit score for an individual. Insurance companies weigh the data in different ways, as they are
not so much concerned about your ability to repay some sum of debt, but rather to model your
probability for a claim or loss.
Many people ask, "how is my insurance score related to the probability that I will have a claim or
loss?" That is a very fair question to ask. The most widely accepted answer within the insurance
industry to this question is as follows: People or businesses that are responsible managers of their
money also tend to be more responsible in other areas, including protecting their property,
conducting business safely, implementing procedures or protections that will reduce claims, etc.
The actuarial data is extremely sound on this point. When they aggregate the policy claim data and
insurance scores, the correlations are stunning and stark!
Is it fair to use insurance score discounts?
Your credit is almost always fair game for consideration when you finance money to buy a car, house
or boat, or even sign a cell phone agreement. It is a representation of how well you've kept your
word to repay a debt in the past, and perhaps the best indicator of your intentions and real ability to
repay your future debts.
While cell phone companies, auto finance and mortgage companies can deny you for bad credit,
insurance companies doing business in Michigan can never deny you home or auto insurance due to
your insurance score.
Since the introduction of insurance scores into insurance rates, companies have made advancements
in more consumer friendly practices. First, some companies will grandfather your insurance score or
will limit the amount it can drop from year to year to a nominal change. In other words, if your score
improves, they will apply it, if it goes down, it will not be changed. This extension of loyalty to a
customer can be a real benefit for someone who has always managed money responsibly, but
suddenly experiences a circumstance for which it takes a while to get things back under control again,
such as the loss of a job or a significant unforeseen expense.
Insurance companies have also made it easier for consumers to make changes that will improve their
insurance score by automatically providing information about their score that prevents them from
receiving the best discount level. Sometimes closing some old, unused credit cards or lines can be
Other times errors exist in the data provided by credit companies. If you do not receive the best
discount, your insurance company may provide you the means to obtain a free copy of your credit
report from one of the 3 major bureaus. Then you can work to correct any mistakes and ask the
insurance company to recalculate your discount level. Some will even apply the new improved
discount level retroactive to the inception of your current policy term!
Some households do not utilize credit, but manage their money responsibly. For such consumers that
get a "no hit," Fremont Insurance Company provides a form that a customer or potential customer
may take to his or her bank to verify certain information. Upon confirming certain information on the
form, such a customer is entitled to one of the best discount levels offered by the company.
Lastly, as a part of personal responsibility it is often recommended that you sign up for a service in
which you can monitor your credit history. It gives you an opportunity to see if mistakes have been
made, if there are accounts open that you thought were closed and many services even help protect
you against credit fraud.
These explanations are intended to provide a simple understanding of some of the basic provisions
found in most insurance policies. Sometimes simple explanations do not address all of the particular
circumstances of a claim, nor may they take into consideration case law or other provisions within a
policy. This FAQ section of the website does not replace, alter or amend any language in your policy, its
terms, conditions or exclusions.
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