Ten years ago, Markham Priest Insurance had one (1) or two (2) insurance carriers that required us to run insurance scores before processing an application for homeowners insurance. Today, all our carriers require us to determine the applicant’s insurance score in order to meet underwriting guidelines.
An insurance score is a numerical ranking based on a person’s credit history. Actuarial studies show that how a person manages his or her financial affairs is a good indicator of future insurance claims. The insurance industry has data that shows that a person’s financial responsibility, financial stability and financial stress are factors that affect insurance claims. These financial factors can translate to stability in other areas of your life, driving safety and deferral of home/auto maintenance. Insurance scores are used by insurance carriers to objectively and accurately anticipate claims and thus charge a premium that is appropriate for the risk they are insuring.
The State of Massachusetts allows insurance scoring for homeowners insurance. If an applicant has a very high insurance score, some insurance carriers will provide additional discounts on the homeowner's policy. For some carriers, insurance scoring is used only to determine if the risk (applicant) is eligible to obtain insurance based on underwriting guidelines. If an applicant has a very low insurance score, he or she will not meet the underwriting guidelines of the homeowner’s carriers and will have to obtain insurance through the Massachusetts Fair Plan.
The State of Massachusetts does not allow insurance scoring for auto insurance. I am unsure if this will change in the future. The new "managed competition" system for auto insurance has brought new companies that are notorious for relying on a person's credit-score, education and occupation to determine the auto insurance premium. As of today, auto insurance premiums are based solely a person's driving record and years of experience.
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