Credit Advice

Insurance scores are different than other credit scores


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Credit Advice

Insurance scores are different than other credit scores

Dear Experian,

I am an insurance agent and had a situation arise that has happened several times in the past and I would like to be able to explain it to the client. How can an insurance score be so much lower than a credit score? What variables actually go into an insurance score?


Dear MAS,

The bottom line is simply that they are different risk scoring systems. Those systems may look at the same information, but they do so differently. They also may incorporate different information in the calculation or have different numeric scales.

Credit scores analyze the risk that a person will not pay a credit account as agreed. They are developed to analyze the information in a credit history to determine risk specific to credit agreements.

Insurance scores analyze the risk that a person will file a claim with their insurance company. While they may use the same credit report information, the scoring systems are developed to correlate credit report information with insurance claim history.

Credit scores have proven effective in predicting insurance claims. Apparently, people who manage their finances well and have low financial risk also manage their property well and are lower risk drivers.

In addition to credit report details, insurance scores may also incorporate claims history and other public records, such as accident reports, which could cause a substantial difference in the scores. Similarly, some credit scores incorporate application information, which could result in a substantial score difference.

Contrary to popular belief, there is not just one credit score used for all risk assessment purposes. In fact, there are hundreds – some estimate more than 1,000 – different risk scores used by businesses, with a wide range of scales.

Experian’s Decision Analytics business division produces credit scoring systems for lenders. However, Experian does not produce insurance scores. There are other risk score developers that produce insurance scores, and some insurance companies may also produce their own scoring systems.

Some scales are very different, and so could result in a huge difference in the numbers, even though they would reflect relatively the same risk. Others have very similar scales and so could result in scores that are only a few points apart.

In either case, the numbers could represent the same level of risk, or substantially greater or lesser risk. The only way to know that is to know what scoring systems are being compared, the scales used and the risk represented by the numbers in those particular systems.

All of the scores begin with the same credit history information. The best way to know what information is most affecting the insurance score is for you to get the risk factor statements that accompany that particular score, if possible.

Those risk factor statements will describe exactly what from your credit history, claims history, or application most influenced the score, depending on what information was reviewed in that particular scoring model.

If those factors are not available, you can get generic, educational credit scores from many sources, including Experian. Such credit scores include detailed reports of what affected the score, both positively and negatively.

The score will give you a good idea of where you stand in terms of overall risk. By addressing the factors described in the risk score report, you will improve your overall risk profile, which should result in improvement to both credit and insurance scores.

Thanks for asking.

- The "Ask Experian" team

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