Auto Insurance Scoring In New Jersey

Auto Insurance Scoring In New Jersey

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A number of car insurance companies in New Jersey use a process called insurance scoring to calculate what premiums they charge you. This insurance score is in addition to standard rating factors, such as your place of residence, age, gender, and driving history. Auto insurers gather information about your credit report, motor vehicle claims and accident history when determining your premium levels. Here's what you need to know about insurance scores, how they work in New Jersey and how they can impact your insurance costs.

How New Jersey car insurance scores work

Insurance scores rely primarily on information contained in your credit report, the same types of reports used to determine your eligibility for mortgages and credit cards. Combined with information they have about motor vehicle claims and accidents, insurers develop their own models for how the data on your credit report translates into a risk profile.

Unlike eligibility points, for instance, where the point values for specific types of incidents are standardized, how each carrier interprets your report is different. Some carriers choose not to use this information at all. New Jersey consumers should understand how their credit history is utilized, since it means that their financial behavior can impact their insurance rates. (Note that in other states like California, a driver's credit history cannot be used in any way when determining insurance premiums.)

For the insurance score, a New Jersey carrier is not permitted to use any of the following information in its calculations: race, ethnicity, sex, age, religion, income, or address. Note that these restrictions are for the insurance score component only. Your sex, age, and address factor heavily into your overall premiums as separate factors.

The companies may also not use data regarding unpaid medical bills or the number of credit inquiries for home or car loans made in the past month (although these last two items will affect your credit score for other financial products).

New Jersey insurers that develop an insurance score take the eligible elements of your credit report to assign a single score between 1 and 999. Like a credit score, higher numbers are generally better and correlate with lower claims and premiums. The companies must inform you that they use credit scores in their process, what factors are accounted for and which "adverse events or actions" are being considered.

Adverse events or actions are negative items on your credit history that reduce your credit score. They can include a failure to pay a credit card bill, bankruptcy filings, and liens or judgements made against you.

Younger drivers or consumers that do not use credit products may not have sufficient credit history to develop a credit score, let alone an insurance score. In these instances, a carrier also can not use a lack of history alone in placing the customer at a below-standard risk tier and thereby charging higher premiums. While a lack of credit history can prevent you from being approved for a credit card or loan, it should not detrimentally impact your auto insurance rates in NJ.

Many insurance companies do not calculate their own insurance scores. Instead, a third party company is responsible for accessing your credit report and determining a score that will be used by your carrier. This means that your carrier may not have access to your personal financial information or any specifics related to your credit history. IFA Insurance in New Jersey, for example, uses Choicepoint to help them calculate insurance scores.

What makes a good insurance score?

Traditionally, credit histories are used as an indicator of your ability to pay back loans or any outstanding debts. For the purposes of auto insurance, however, your creditworthiness does not interest the carrier. Instead, they are looking at what the various items on your credit report might say about your risk-taking behavior and likelihood of claiming insurance losses. As a result, insurance companies look at different factors than a back or mortgage company would. Insurance companies, for instance, do not have much interest in your income.

For good insurance scores, an established history with the lack of any adverse events is a large factor. Events designated as adverse include things like bankruptcies, liens, collections, or any major delinquencies. Other items that insurance companies consider are the quantity and types of credit accounts you have open and the ratio of your balance to credit limits. IFA claims that those drivers with the best insurance scores could see as much as a 40% overall reduction in their premiums.

Extraordinary life event exception

Since the purpose of the insurance score is to assess your expected long-term behaviors as it relates to risk and the likelihood of insurance claims or loss, the state of New Jersey recognizes and excludes some circumstances in life that can have a major negative influence on your household finances. To address these situations, carriers must make exceptions if any of the negative information on your credit history is a result of:

  • Catastrophic illness or injury
  • Death of a spouse, child, or parent
  • Temporary loss of employment
  • Divorce
  • Identity theft

Since these types of situations can cause significant financial strain, they can sometimes lead to issues keeping up with your budget, and therefore your credit history. Insurers are required to either ignore these sorts of credit events or apply a neutral credit score overall.

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