A credit-based score that is highly predictive of future claims cost is an individuals

What is an insurance score?

An insurance score is a score calculated from information on your credit report. Credit information is very predictive of future accidents or insurance claims, which is why Progressive, and most insurers, uses this information to help develop more accurate rates. Each insurer has its own method for evaluating this credit information. At Progressive, we develop our method by analyzing the following data from people we have insured:

• Accident and insurance claim history
• Credit report information

The results of this analysis tell us what credit information will help us predict how likely you are to have a future accident or insurance claim. We assign a value to each predictive credit factor and add the values to calculate your insurance score. The lower your score with us, the better.

Are insurance scores the same as credit scores?

No. A credit score is based on your ability to repay amounts you have borrowed. An insurance score predicts the likelihood of you becoming involved in a future accident or insurance claim — it is based on information gathered from policyholders with similar credit characteristics who have had previous claims with us.

When banks and other lenders determine credit scores, they may factor in your income, job history and other matters that might affect your ability to repay a loan. Banks also can deny you a loan based on your credit score. We do not consider income or job history, and we won't deny you a policy based on your insurance score.

What credit factors can affect an insurance score?

Favorable credit information results in lower premiums. Because both above-average and below-average factors are evaluated, you still have the opportunity to get a lower rate, even if there are some below-average items in your credit history.

Favorable credit factors might include:

• Long-established credit history
• Numerous open accounts in good standing
• No late payments or past due accounts
• Low use of available credit

Unfavorable credit factors might include:

• Collection accounts
• Numerous past-due payments
• High use of available credit
• Numerous recent applications for credit

These factors vary by state to comply with the laws of each state.

How can I improve an unfavorable insurance score?

While there are some things that are out of your control — having a short credit history, for instance — you can generally improve your insurance score with us by making loan and mortgage payments on time, keeping accounts in good standing, and avoiding numerous credit applications in a short period of time.

Also, look at how much credit you have available. If you are using all or nearly all of your available credit, it could be regarded as an unfavorable factor.

Last Updated 2/22/2022

Issue: Insurance companies often use consumer credit information in determining if they will offer a consumer automobile or homeowners' insurance policy and how much that policy will cost. A credit-based insurance score is a rating based in whole or in part on a consumer's credit information. Credit-based insurance scores use certain elements of a person's credit history to predict how likely they are to have an insurance loss. Credit-based insurance scores were introduced by the Fair Isaac Corporation (FICO) in the early 1990s. FICO estimates approximately 95% of auto insurers and 85% of homeowners' insurers use credit-based insurance scores in states where it is a legally allowed underwriting or risk classification factor.

Overview: Insurers use credit-based insurance scores primarily in underwriting and rating of consumers. Underwriting is the process by which the insurer determines whether a consumer is eligible for coverage and rating is the process that determines how much premium to charge a consumer. The credit-based insurance score models used by insurers are designed to predict the risk of loss. Insurers use credit-based insurance scores for underwriting to assign consumers to a pool based on risk and then for rating by deciding how to adjust the premium up or down.

Insurers argue that the use of credit-based insurance scores is necessary to properly evaluate risk and charge individual policyholders rates that most closely align with their true risk. They also note that not using credit-based insurance scores could result in lower-risk individuals bearing some of the costs from higher-risk individuals.

Typically, states will not allow credit-based insurance scores to be used as the sole basis for increasing rates or denying, cancelling or not renewing policies. Some states prohibit credit-based insurance scores being used as the sole basis in underwriting or rating decisions.  Some states require insurers to notify applicants or insureds that adverse credit-related decisions have been taken regarding pending applications or existing coverage based on the consumer's credit score. Currently, California, Hawaii, Maryland, Michigan, and Massachusetts ban or limit insurance companies' use of credit scores in determining policy rates. Washington Commissioner Mike Kreidler issued an order that goes into effect March 4, 2022, that will prohibit insurance companies from using credit scores to set policy rates on auto, homeowners, and renter's insurance for the next three years. Other states, such as Oregon and Utah, have established prohibitions on the use of credit history information in certain circumstances.  

Consumer groups continue to have concerns with the use of credit-based insurance scores, including the fact that most consumers do not understand the concept of credit-based insurance scoring or how or why it works. Many consumers are not even aware that their credit characteristics are being used to create a score that will then affect their purchase of an insurance policy. Even if they have the knowledge of the existence of credit-based insurance scores, it is not intuitive for consumers to understand how credit-based insurance scores work or why they work.

Some groups allege that the use of credit-based insurance scores falls disproportionately on certain minority and low-income groups. Moreover, the use of credit-based insurance scores may not appropriately encompass unforeseen life events, such as the recent Covid pandemic. 

Status: State insurance regulators continue to monitor the impact of credit-based insurance score on consumers.  A Credit Based Insurance Scoring Symposium was held at the 2011 NAIC Fall National Meeting to discuss the use and impact of credit-based insurance scores. The Symposium featured representatives from two credit information vendors as well as consumer representatives.