The insurance score is an important value where most insurance companies based their decision in determining their premium charging. The most common misconception on the insurance credit score is that others believe that there is some direct relationship between financial credit scores that is usually used in lending decision and this one. But rather than measuring the creditworthiness of a person this tries to predict the risk involved in homeowners and private automobile insurance. There is no known universal scoring model used in predicting the insurance scoring of certain clients of different insurance companies. In fact each company keeps their credit scoring models a trade secret. There are little known facts about it because each designer would want to protect their models from their competitors.
There have been a lot of studies done in determining the effect of insurance score to the consumers. According to the studies done, the insurance credit score system have been effective in predicting the risk within the ethnic groups that is really advantageous to the insurance provider. Although there is little known fact about the benefit of doing the scoring to the consumers. There is still an on-going dispute on the true importance of doing the scoring because there are some groups which believe that it does not give any benefit to the consumer. Most insurance companies namely the American Academy of Actuaries and the Insurance Information Institute are in support of the scoring models used by private insurance companies. While some concerned groups like the Center for Economic Justice and the National Consumer Law Center are just a few of the active opponents of the system. As a result, there are some states that have banned the use of this information. In Hawaii, for example, this is not allowed in personal automobile underwriting. Other states have written certain restrictions, making it possible for the contending positions to reach a middle ground. But there are some which have unsuccessfully attempted to ban or put certain restrictions in the practice of scoring.
The insurance score is usually done in considering some important factors like the driving experience, the vehicle age and the previous claims availed. This will then help the insurance company in giving premium charges to the costumers. Usually the insurance credit score models are built with the selection of credit report characteristic and merge it with the insurance claims including the profitability data to be able to produce a numerical result where they base their conclusion and findings. Although much is yet to be discovered regarding the advantages that the scoring brings to the consumer, it protects the insurance company in giving their services with only those who highly deserves it.