A scoring model may be unique to an insurance company and to each line of business (e.g. homeowners or automobile), in terms of the factors selected for consideration and the weighting of the point assignments.
Insurers consider credit report information in their underwriting and pricing decisions as a predictor of profitability and risk of loss.
Various studies have found a strong relationship between credit-based insurance scores and profitability or risk of loss.
The scores are generally most predictive when little or no other information exists, such as in the case of clean driving records, or claims-free policies; in instances where past claims, points, or other similar information exist on record, the personal histories will typically be more predictive than the scores.
Insurers consider credit report information, along with other factors, such as driving experience, previous claims and vehicle age, to develop a picture of a consumer's risk profile and to establish premium rates.
The report was disputed by representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice, for relying on data provided by the insurance industry, which was not open to examination.
[16] Birny Birnbaum, Consulting Economist, argues that insurance credit scoring is inherently unfair to consumers and violates basic risk classification principles.
In 2002, the Texas Department of Insurance received a peak of 600 complaints related to credit scoring, which declined and leveled to 300 per year.
Although data available for the study was limited, the state of Alaska determined that some restrictions on credit scoring would be appropriate to protect the public.