December 15, 2009

Your Insurance Score: What It Is And How It’s Used By Auto Insurance Companies

Do you ever wonder how an auto insurance company comes up with a quote for you after you’ve supplied them with all of your information? Enter the auto insurance score. This figure determines the premium you will pay to an auto insurance company. However, this number is rather elusive to the average consumer. According to Consumer Reports, the average auto insurance company seldom discloses auto insurance scores or their function in deciding premiums. The scoring models utilize data that seem to have no influence on the driver’s potential to file claims. Because each company uses different models and considers factors such as credit report information in different ways, there isn’t an industry standard for calculating scores.

Although methodology varies, there are factors that comprise your auto insurance score. An auto insurance score reflects a combination of your driving record and your credit score. Insurers consider your credit history because it is an indicator of the likelihood that the insured will file a claim. It is worth noting that even a person with a clean driving record could experience increased premiums if they have a low credit ranking.

The calculations of insurance scores differ from traditional lender scores. The formulations for insurance scoring consider credit data in a different way. For example, if a credit bureau reports that a person has opened a credit card account recently and two credit accounts the year before; then made a couple loan inquiries without accepting the credit; they may experience higher premiums. Insurance industry professionals contend that there is a statistical correlation between auto insurance scores and claims filed. However, consumers should be aware that shopping around and getting multiple auto insurance quotes does not penalize you in any way when the time comes to actually purchase an auto insurance policy. On the other hand, inquiries resulting from a loan application do count.

In addition to your insurance score, factors such as age, gender, marital status, yearly mileage, coverage type, accidents and traffic violations, and the type of vehicle being insured influence auto insurance costs Whether you live in the city or in a rural area is yet another factor The amount of an auto insurance quote also has everything to do with your loyalty to your current insurer. You can benefit by staying with the same company because insurers have determined that long-term customers have fewer claims. Multiple policies with the same company, going paperless, scheduling electronic funds transfer or paying your premium in full are other ways to lower your auto insurance costs.

Knowing ahead of time what is going to affect the insurance rates you receive will help you prepare yourself for the costs you will be asked to pay for auto insurance.