What is Insurance Scoring?

1 Insurance scoring is one of many factors used to evaluate risks and assign rates. It isbased upon years of experience nationwide that demonstrate that there is a direct statis-tical relationship between how you manage your finances and your auto Insurance score is based on information contained in consumer credit reports. The score isthen used with motor vehicle records, loss reports and application information to deter-mine your Insurance risk at a particular point in is Insurance Scoring? How much do you knowabout your credit history?Credit information is used in virtually every aspect of Ameri-can financial life. Consumer credit is considered when ap-plying for loans to buy homes and automobiles.

2 Creditchecks are required to get utility service, telephones andcable television. Few landlords will rent apartments orhouses without ordering a credit report. Credit may alsoaffect employers hiring and promoting credit history may beconsidered when you:Apply for home or auto loansGet a cell phoneApply for a credit cardEstablish cable or utility serviceRent an apartment or houseApply for a jobHow is your Insurance score calculated?An Insurance score is a snapshot of your credit at a pointin time. Your credit report is put through a scoring modelthat assigns weights to various factors to determine athree-digit number (or Insurance score) ranging from 100to 999. While models vary, a higher score usually indicatesthat an individual is a member of a group that is historicallyless likely to have future Insurance claims.

3 A lower scoregenerally indicates that an individual is a member of a groupthat is more likely to have future claims. As with all classifi-cation systems, individual loss experience may vary fromthat of the group as a whole. For instance, while not every17-year-old will get into an accident, that age group as awhole is more likely to get into an do Insurance companies usecredit-based scores? Insurance scores are one among many predictors used todetermine a consumer s likelihood to file claims, accord-ing to Insurance organizations and independent Insurance companies use the scores to more accu-rately price their policies based upon the likelihood of fu-ture claims. An Insurance score is one of many factors inthe auto Insurance underwriting process that is already stan-dard practice in more than 40 introduction of Insurance scoring is yet another step inproviding consumers with choices in companies, productsand price.

4 Consumer safeguards crafted by DOBI are de-signed to protect the interest of New Jersey auto insur-ance policyholders, and encourage Insurance companies that use Insurance scoring mustnotify policyholders of the practice, the factors that affectthe scoring , and whether an adverse event is being protections prevent auto Insurance companiesfrom using Insurance scoring as the only factor in de-termining rates. DOBI also requires auto Insurance com-panies to submit their scoring model to the Departmentand to fully disclose the factors used in establishing themodel as well as its statistical justification. New Jerseyauto Insurance scoring models cannot consider race,ethnicity, sex, age, religion, income, address, unpaid medi-cal bills, and the number of inquiries made within 30 daysfor home and auto protections also: 1) prohibit auto Insurance compa-nies from using Insurance scoring for consumers coveredby the Dollar-a-Day or Basic Policy programs; 2) preventauto Insurance companies from putting a consumer with-out a credit history in a below-standard tier without actu-arial justification.

5 And 3) requires auto insurancecompanies to protect policyholders who have been withthe company for seven years and had no claims or s guidelines also require auto Insurance companiesto provide exceptions for consumers whose credit infor-mation has been directly influenced by extraordinary lifeevents, such as catastrophic illness or injury; death of aspouse, child or parent; temporary loss of employment;divorce; or identity theft. In such cases, auto Insurance com-panies may consider only credit information that is not af-fected by the event or shall assign a neutral Does DOBI Protect the Consumer?DOBI guidelines require autoinsurance companies to provideexceptions for consumerswhose credit informationhas been directly influencedby extraordinary life events,such as:Death of a spouse,child or parentCatastrophic illness or injuryIdentity theftDivorceTemporary lossof employmentFYI: Insurance scoring BasicsWhat information cannot be used in Insurance scoring ?

6 The following information cannot be used in any Insurance scoring models: Race Ethnicity Sex Age Religion Income AddressWhat factors can affect your Insurance score?There are a number of factors that determine Insurance scores. Following is a list ofcommon factors: bankruptcy, collections, foreclosures, liens, etc.; number and frequencyof late payments; length of credit history; number of credit inquiries (such as applyingfor a mortgage loan or credit card); number and extent of open credit lines; type ofcredit in use; outstanding a husband and wife have different scores, which one isutilized?Individual companies address this issue differently, but DOBI has found that, in manystates, companies usually use the score of the person applying for the about those who shop around for the best autoinsurance rates?

7 Will those Insurance company inquiriescreate multiple hits? No. These inquiries are reflected on the credit report but are not used in developing aninsurance about those individuals for whom a score cannot becalculated?New Jersey s plan prohibits auto Insurance companies from considering a lack ofcredit history unless it provides actuarial justification. The plan also does not allowauto Insurance companies to use a lack of credit history as the sole reason to put apolicyholder in a below-standard unpaid medical bills affect my Insurance score?No. In New Jersey, Insurance scoring models cannot consider unpaid medical can consumers do to improve their Insurance score? Pay bills on time.

8 Delinquent payments and collections can have a major negative impact onan Insurance score. Keep balances low on unsecured revolving debt, such as credit cards. High outstanding debtcan affect an Insurance score. Apply for and open new credit accounts only as needed. Maintain the necessary minimumnumber of credit cards, as well as other credit accounts. Annually request a copy of your credit report. Review for accuracy and correct all errors inwriting. Over time, responsible use of credit can increase a customer s Insurance to Protect or Improve Your Credit HistoryTake charge of your credit historyIf your auto Insurance company is using your Insurance score to calculate your rates, you can takesteps to improve your premiums.

9 Get a copy of your credit report and correct any errors. Notify your Insurance agent and com-pany of any errors and advise them once the errors are corrected. Improve your credit history if you ve had past credit problems. If your credit score is causingyou to pay higher premiums, ask your auto insurer if they will re-evaluate you when your your credit historyThere is a good chance your current or prospective Insurance com-pany will consider financial stability as part of its underwriting pro-cess. Insurance scores are based on information from consumercredit reports that insurers or statistical modelers get from the threemajor credit agencies: Equifax, Experian (formerly known as TRW)and TransUnion.

10 Therefore, it is a good idea to review your credit his-tory to make sure it is accurate. Request a copy of your credit history fromEquifax at ,Experian at ,and Trans Union at ,as all three will have credit files on you. You can also contact the Fed-eral Trade Commission for consumer brochures on credit at Fair Credit Reporting Act requires an Insurance company to tellyou if they have taken an adverse action against you, in whole or inpart, because of your credit report information. If your company tellsyou that you have been adversely affected, they must also tell you thename of the national credit agency that supplied the information sothat you can get a free copy of your credit report and correct any are entitledto a freecredit reportNew Jersey law entitlesconsumers to a freecredit report each yearfrom each of the get your report, call.