What Your Auto Insurer Knows About You

When you apply for an insurance policy or submit a claim, you're probably unaware of the streams of information about you that flow to your insurance company, private businesses, and your previous insurer. Mark Twain once wrote that insurance companies are a "power behind the throne that [is] more powerful than the throne itself," but that was more than 100 years ago. Today, the true power lies in the hands of the database companies that make their money by selling information about you.Scoring your financesWhat the insurance industry calls "credit scores" are actually "insurance risk scores." Both scores are based on information contained in your full credit report, but they put weight on different factors in order to calculate a final score. Thus, even if you purchase your credit score from one of the major credit-reporting agencies, you still don't know your "insurance risk score," which is not available to you.According to Craig Watts of Fair, Isaac & Co., a provider of scores, a regular credit score weights data in order to evaluate your use of money. But insurance scores give weight to data in order to evaluate your stability. So, if you've paid your bills in a timely manner and you've had accounts open for a long time, you would be considered more "stable" than someone who has been delinquent and opens and closes accounts frequently. Credit scores and insurance scores generally move in the same direction as your credit history changes (meaning move up or down), but there could be cases where you have credit activity that impacts one score more than the other.If you have some unusual activity within the month before you buy auto insurance, your insurance score could be downgraded. Insurers may then consider you a bad risk (where allowed by law) and refuse to sell you a policy, or charge you a higher premium for a policy. However, if you decrease your credit activity and wait a month to purchase your insurance, you could help your chances. Remember that there are many factors that insurers use when evaluating you as an auto or home insurance customer, including your driving record (for auto insurance only), your personal claims history, and where you live.ChoicePoint and ISOChoicePoint, with the help of a Fair, Isaac and Co. scoring formula, and the Insurance Services Office (ISO) offer insurers extensive nationwide resources that contain your name, address, phone number, credit report, claims history, and motor vehicle report - and that just scratches the surface. ChoicePoint also compiles aliases, criminal records, and histories of vehicles. "If you've got a car that's been in 35 accidents, that's something the insurance company is going to want to know," says Mark Wheeler, spokesperson for ChoicePoint.ChoicePoint, which is an offshoot of the Equifax credit-reporting company, maintains a database called CLUE (Comprehensive Loss Underwriting Exchange). The company uses the information it gathers and maintains for "casualty loss" scoring, claims history reporting, and driving-record reporting. When a consumer fills out a new auto insurance application, the potential insurer queries ChoicePoint for an insurance score. ChoicePoint caters to nearly all property and casualty insurers.The ISO says the databases it maintains, called the All Claims databases, are strictly for detecting fraud and expediting the claims process. If the ISO sees a series of claims that looks suspicious - for example, the same name appears on all the claims with a different social security number - the company will notify the insurance company and the insurer will investigate. The ISO also has information about any of your claims that might have ended up in court.Some insurers have their own "scores"After investigation, State Farm - the country's largest auto insurer - decided to use "prior loss history and certain credit characteristics" to create a model that helps it determine an underwriting score for a policyholder applying for a homeowners or auto policy.State Farm says, "It is significant that we are combining credit characteristics and prior claims history for these models and that we have developed the models using our own book of business. Our models are not designed to assess wealth, income, or creditworthiness, but focuses on the prediction of future insurance losses."State Farm adds that it believes the "use of this model will lessen the extent to which those who represent higher potential risk are subsidized by those who represent lower potential risk."Checking your recordsMost of the information that insurance companies collect and use for rating purposes is available from government agencies credit-reporting companies. For example, you can get a copy of your motor vehicle report from your state's department of motor vehicles, and you can get your credit history from Equifax, Experian, or TransUnion.You can get a copy of the ChoicePoint CLUE report by calling ChoicePoint's Consumer Disclosure Center at (770) 752-6000. The report will cost between $8 and $10, depending on how the consumer wants the information, says Wheeler of ChoicePoint.You can acquire a copy of the ISO All Claims report if you dispute the information it contains. The ISO Auto Property Loss Underwriting Service (A-Plus) report provides insurance underwriters with the means to independently investigate and evaluate potential risks. Consumers can call (800) 709-8842 to obtain copy of their report. A "request for disclosure" form must be completed.