Credit scores are based on an analysis of an individual’s credit history. Insurers often generate a numerical ranking based on a person’s credit history, known as an “insurance score,” when underwriting and setting the rates for insurance policies. Actuarial studies show that how a person manages his or her financial affairs, which is what an insurance score indicates, is a good predictor of insurance claims. Insurance scores are used to help insurers differentiate between lower and higher insurance risks and thus charge a premium equal to the risk they are assuming. Statistically, people who have a poor insurance score are more likely to file a claim.
Source: Insurance Information Institution. “What does my credit rating have to do with purchasing insurance?” http://www.iii.org. Accessed November 30, 2015. http://www.iii.org/articles/what-does-credit-rating-have-to-do-with-purchasing-insurance.html
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