Bamboozled May 1, 2017: Paying too much for car insurance? It could be your mysterious insurance credit score

New Jersey’s car insurance rates have never been cheap.

A recent study said the Garden State’s rates are the third highest in the country, behind only Michigan and Montana.

With the average Jersey bill at $1,905, we’re paying 44 percent more than the national average, the study said.

A different study placed New Jersey as the most expensive in the nation for five years in a row.

That kind of sticker shock sends drivers to look for cheaper insurance offers.

Ken Lowenstein of Wanamassa recently searched for a less costly policy, and he was surprised by what he learned.

It started when his wife made a switch to Allstate, saving about $430 a year for coverage for her and her daughter.

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Marion and Ken Lowenstein learned they had very different insurance credit scores, but they haven’t been able to find out why. 

Lowenstein said he called his wife’s agent to see if he could do better than the $2,078 a year Lowenstein pays for himself and his son.

The agent came back with a quote of $2,484 — higher than Lowenstein was already paying. The real surprise was that it was significantly higher than his wife’s quote.

He didn’t have accidents or tickets on his record, so Lowenstein asked why there was such a big difference.

“One reason was understandable — my PIP (personal injury protection) amount was much higher that hers,” he said. “The other was due to a much worse credit score than hers.”

That didn’t make sense to Lowenstein, who said he has a credit score of between 817 and 824, which he said has always been higher than his wife’s credit score.

But this wasn’t a typical FICO-type credit score. It’s an insurance credit score, also called a credit-based insurance score – one specifically created by and for insurance companies.

Lowenstein said he was told he had a score of 10 out of a possible 16, with 16 being the worst and 1 being the best.

The agent told Lowenstein to contact TransUnion, on whose data the insurance credit score was formulated.

“I reached out to TransUnion for help and was told they do not know how their credit score translates to an insurance score,” Lowenstein said. “I requested all three of my credit reports and all had nothing negative.”

He tried the insurance company’s customer support team, but said he got nothing but a runaround.

“Bottom line: How can I determine how insurance does their scoring for policy pricing?” he asked.

BEHIND THE CREDIT-BASED INSURANCE SCORE

Traditional credit scores are made up of items including your payment history, the amount of your outstanding balances and how long you’ve had credit.

Insurance credit scores aren’t as transparent.

All the insurance companies we contacted to get a better understanding of what’s behind a credit-based insurance score declined to comment for this column, but they instead pointed us to the Insurance Information Institute (III), an industry group, and to Fair Isaac, the company that created the FICO credit score.

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Ken Lowenstein sits in his car. He wants to know why his insurance credit score is low even though his traditional credit score is high. 

Lamont Boyd of FICO said the company’s credit-based insurance scores focus on “past credit management practices that have been proven to statistically correlate to future auto or home insurance losses.”

“There is no causal relationship, simply the statistical relationship necessary to support good underwriting and pricing decisions,” Boyd said. “Our credit-based insurance models focus on future insurance losses, measuring only those credit report variables appropriate for that prediction.”

So it’s a little bit of assumption based on past behavior.

Boyd said it’s common for a person to have similar traditional credit scores and credit-based insurance scores.

But there are times they will diverge, and it all depends on what factors the insurance company decides to consider.

“The way in which the scores are used as part of each underwriting decision – lending vs. insurance or insurer vs. insurer – can be quite different,” Boyd said. “Each insurer chooses to use credit-based insurance scores in the way that best meets their firm’s overall marketing, underwriting and pricing strategies, so it’s important for a consumer to shop for the best auto or home insurance offer available, given their own credit management history.”

In other words, the insurers assess risk differently, and they consider different variables in their credit scores. So your insurance credit score could vary from carrier to carrier.

The Insurance Information Institute (III) offers similar information on its website,  sharing the findings of several studies that found those with higher FICO-type scores were less likely to file insurance claims.

“The character trait that leads to careful money management seems to show up in other daily situations in which people have to make decisions about how to act, such as driving,” III said.

But, it said, “A low insurance score doesn’t predict that a person will have an accident.”

Bamboozled’s translation to you, dear consumer?

You’re stuck. We all know what steps to take to raise a traditional credit score, such as making payments on time and keeping outstanding credit balances at reasonable levels.

But for an insurance credit score, no one will tell you what you need to improve or what, if any, red flags your history has created.

Each company will individually decide what to count in your insurance score, so it’s hard to proactively work to raise your score. Of course it makes sense that accidents or traffic tickets could hurt your score, but we really don’t know what else might be considered.

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Ken Lowenstein walks to his car. 

And while you’re entitled to a free credit report if you’re denied credit, insurance companies are not required to share your credit-based insurance score if you question a premium quote.

We went back to Allstate to see if it could share anything specific on Lowenstein’s case, but it said it doesn’t comment on specifics related to customer insurance quotes.

It said Allstate does have a formal appeals process for existing customers to appeal their credit-based insurance scores, but not so for prospective customers. Still, prospective customers can request one, a spokesman said.

Allstate pointed to this link to its website with information on how it uses credit scores, but it wasn’t very specific.

The spokesman offered a general statement, saying that in general, insurance prices are risk-based, so lower-risk drivers pay less than higher-risk drivers.

The insurer evaluates factors such as driving safety record (including previous accidents), amount and location of driving, number of operators, type of vehicle as well as credit information.

“Elements from a driver’s credit history are used to establish an insurance score, which we’ve found helps us better predict the potential for an insurance loss,” the spokesman said. “Considering all of these elements enables us to match our rates to the risk we’re assuming, offer lower premiums to many customers who would otherwise pay more for a policy and provide coverage to more people.”

Lowenstein went back to the company to see if he could learn anything more.

He said he was forwarded to a sales rep who checked Lowenstein’s file in the Allstate system, finding only limited information. There was no sign of detail about anything that resulted in Lowenstein’s lower insurance credit score, Lowenstein said he was told.

The rep promised to forward the question to a manager, Lowenstein said, and that he might receive a call back with additional information.

We told Allstate about this, and it went a step further, promising Lowenstein would get a call.

And he did.

A customer resolution specialist apologized for the lack of return calls and promised to open a complaint on Lowenstein’s behalf, Lowenstein said.

“He said you could have the highest credit score possible but does not reflect the insurance score,” Lowenstein said.

The specialist talked about some new accounts that Lowenstein opened at the time, and one account he opened but never used, he said.

“The rep mentioned that doing this affects my insurance score as much as having too much charged on the card,” Lowenstein said.

It makes sense such action could hurt a traditional credit score, but Lowenstein’s credit score was sky high.

Sorry folks. This all remains a mystery.

Have you been Bamboozled? Reach Karin Price Mueller at Bamboozled@NJAdvanceMedia.com. Follow her on Twitter @KPMueller. Find Bamboozled on Facebook. Mueller is also the founder of NJMoneyHelp.com. Stay informed and sign up for NJMoneyHelp.com’s weekly e-newsletter.