How credit reports affect insurance scoring and how often they need to be updated

September 19, 2022

Insurance scoring is when insurers use a score, which is based on a policyholder’s credit history, to screen potential customers for underwriting acceptability.

Originally, the scoring methodology was developed in the context of evaluating loan applicants. Credit bureaus began working with Fair Issac Co., to develop generic scoring models to identify the comparative risk of delinquency for an applicant for credit based on characteristics within the credit report. Then, insurers became interested in developing models that could predict underwriting results.

The typical report agents and insurers receive from providers, such as Lexis Nexis, contain the following information:

  • identifying information—the consumer’s name, current and prior addresses, Social Security number, date of birth and employment information;
  • trade lines—information on credit cards and loans including date reported, date opened, credit limit, current balance, type of credit and the status of the account;
  • inquiries—requests for information about a consumer’s credit history; and
  • public record and collection items—information on judgments, liens, and bankruptcies.

Additionally, credit reports could contain a consumer statement section.

A credit report should not contain the following information:

  • record of bankruptcy—filed more than 10 years prior to date of report;
  • suits and judgments—filed over seven years prior to date of report;
  • tax liens—paid over seven years prior to the date of report;
  • accounts placed for collection or charged to profit and loss—over seven years prior to date of report;
  • adverse information—which antedates the report by over seven years; and
  • records of arrest, indictment or conviction of crime—from date of disposition, release or parole, antedates the report by more than seven years.

Since credit reports play a vital role in determining a policyholder’s insurance score, a PIA Northeast member asked PIA the following question:

An insurer uses a policyholder’s credit information in rating personal auto or homeowners insurance. How often (in the absence of a request by the policyholder) must the insurer update the credit information?

Insurers are not required to rerun the reports on their own initiative after the policy has been issued. However, if they do, the results of that report only can be used to reduce the premium.

Also, policyholders can request rerating using current data if they have corrected information in their consumer report; or—prior to a renewal—if the insurer uses credit in determining renewal premium.

However, insureds may request to have their reports run as often as they like, but an insurer only has to honor that request once every 36 months.

Want more information?

For more information on how insurance scoring is used in the specific states in the PIA Northeast footprint, association members can access the following document: What’s the score?—Insurance scores, MVRs, credit reports and their compliance issues in the PIA QuickSource library.

Select your state below:

Connecticut

New Hampshire

New Jersey

New York

Vermont

About the author…

Shirley Albright, CPIA, CISR

Shirley Albright, CPIA, CISR, joined PIA in 1983 and has worked in many facets of the association over the years. In 1995, she was an integral part of establishing the Industry Resource Center to include the development of the software system to record and track all incoming and outgoing inquiries. She quickly moved from industry resource representative to assistant director and eventually to her current position as director. Currently, Shirley oversees the daily operations of the Industry Resource Center to include the triage of thousands of incoming member inquiries. Her other accomplishments include obtaining her New York state property/casualty broker’s license, CPIA and CISR designations.

Related stories…

Do carrier ratings really matter?

Do carrier ratings really matter?

In a word: Yes. They do. There are organizations that rate the financial condition of insurance companies, such as...

Share This