Insurance companies use an insurance score to determine what risk they are taking and how much they will charge us when we want to buy them a policy. It determines how likely you are to file a claim or file a lawsuit.

Insurance Score Origins

The Fair Isaac Corporation developed the first insurance score in 1956. It was called the FICO score because Fair Isaac Corporation was known as Fair Credit Corporation in the 1950s.

The Internal Revenue Service initially used the FICO score to determine if an individual should pay taxes. Employers, credit card companies, lenders, and other businesses can use the FICO score to assess risk and propose acceptable financing terms.

Insurance companies use insurance scores to assess the risk posed by individuals about to claim insurance coverage. The higher the score, the greater the chance you will need to file a claim to receive coverage.

An insurance score typically contains information about several factors affecting your likelihood of making an insurance claim. These factors include gender, driving record, credit report, and location. Most insurance companies use a combination of these factors to compute an insurance score.

How Is An Insurance Score Calculated?

There are two different ways that insurance companies can compute your insurance score. Insurance scores can either be calculated by a formula, or they can be a number that is assigned to you by an insurance company employee.

The insurance score will reflect how likely you are to file a claim and how much risk you pose to the company as its client. If a formula computes your insurance score, it will be based on statistics that compare similar individuals in the same area and with similar characteristics.

If an insurance agent assigns your insurance score, it will probably be based on factors that reflect your current trend of making claims or factors directly related to you. These factors may include your gender, credit report, using the insurance for your car, home, life, and where you live.

For example, if an agent believes that particular sex is more likely to file a claim than another sex, they may assign you a higher insurance score if you are of that sex. The formula is one way the insurance company can compute an insurance score. The insurance company will first calculate your insurance score by surveying your personal information to determine how likely you will file a claim.


Companies can use insurance scores to determine the risk they are taking by insuring you. If the company is a reasonable risk, it will not have to charge you a high insurance premium. Instead, it will receive a lower compensation from another company which will have to charge you a higher premium.