Claims
In recent years, most insurers have begun using information from personal credit histories to decide whether to issue you automobile and homeowners insurance and how much to charge. "Credit scoring" condenses large volumes of consumer credit information into a single score. Consumers with too low a score may face high premiums or be denied coverage altogether. Those whose credit histories are too limited also are subject to higher insurance costs, depending on the insurer.
Scores used in insurance underwriting and rating usually differ from credit scores used to assess lending risk. Insurance scores are not designed to predict the likelihood of default or measure credit worthiness. Instead, they are to predict the likelihood that an individual will file an insurance claim. One could have a good credit score for lending, but a poor insurance score. In fact, instances exist in which applicants have been approved for home loans, but rejected for insurance on that home.
Two of the largest suppliers of scores to insurers are Fair, Isaac and Co. (FICO) and ChoicePoint. In addition, many of the larger insurers have developed their own in-house scoring methods. Sometimes, these credit scores are combined with other factors to produce an "insurance score" or "risk assessment factor." At other times, credit scores may account for all or most of a company's decision on pricing.
These questions and answers are designed to help consumers understand how their credit information is used by insurers and to alert individuals adversely affected by credit history use about possible remedies.