Why do insurance companies use insurance scores?
Insurance companies decide what rate to charge based upon the potential for loss. Insurance companies consult a number of sources for underwriting information to help them make better, more informed decisions about the potential for loss. Research shows that individuals with certain financial characteristics on their credit report are less likely to submit claims. The Farm Bureau Insurance companies provide the FB Advantage Premium Discount for insureds who have an insurance score that reflects this reduced claim potential.
A. Insurance companies need to be able to predict risk accurately so that what consumers pay for insurance reflects its cost. Studies have found a very strong link between insurance scores and the likelihood of auto insurance losses. Insurance companies vary in their use of insurance scores. Some use them only when other factors suggest that the applicant is a poor risk — in insurance terms, a person who is likely to file more claims. Others use insurance scores extensively, both in underwriting and in setting rates. All companies must follow the Fair Credit Reporting Act and state laws that apply to the use of credit information. These measures ensure that there is confidentiality, accuracy and a legitimate need for the information sought. Q. What advantages are there for consumers? A. Most people have good credit histories so the use of insurance scoring may help them get insurance even if they have had to file claims for accidents, theft or other losses. For many people, the use of
