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risk assessment

Questions About Risk Assessment Factors

At Farmers, we are always looking for new ways to keep the cost of insurance affordable.

When it comes to insurance, we know what you want. You want quality coverage from a solid, dependable company. You want the peace of mind that comes with knowing, in the event you need us, we’ll be there to get your life back to where it belongs quickly, compassionately and with as little hassle as possible.

We also understand that you want all of the above at the best price possible. And you feel, rightfully so, that if you are a good insurance risk, you should be rewarded with lower premiums. The following provides you with information on the Risk Assessment Indicator – a tool we use during the underwriting process to help us determine the premium you pay and, in some states, eligibility for insurance. Hopefully, we will answer any questions you have. As always, feel free to contact me if you still have questions.

Why does Farmers use Risk Assessment Indicators?

Several years ago, Fair, Isaac & Company, a company that specializes in predictive modeling, developed the concept of assessing a customer’s credit history and evaluating it to predict future insurance losses. At the time, many industry experts had proven that a correlation existed between credit history and insurance risk.

Convinced that it was a good way to accurately and fairly segment the appropriate rate for the appropriate risk, Farmers started using Risk Assessment Indicators. Keep in mind, this is one of several factors that may be considered in determining your premium.

What is a Farmers Risk Assessment Indicator?

A Farmers Risk Assessment Indicator is a numerical score based on credit report information. Depending on the kind of policy, Farmers’ underwriters may use the resulting indicator along with motor vehicle records, loss reports and other application information to evaluate Auto and Homeowner insurance policies. It helps answer the question, “If we accept this applicant or renew this policy, will we likely be exposed to more losses than our collected premiums will allow us to handle?”

Where do Risk Assessment Indicators come from?

Risk Assessment Indicators are based on information from consumer credit reports that insurers get from one or more of the three major credit bureaus: Equifax, Experian (formerly known as TWR), and Trans Union. Information used in coding includes: • Outstanding debt • Length of credit history • Late payments, collections, bankruptcies • New applications for credit • Types of credit in use.

What’s not included in a Risk Assessment Indicator?

Insurance Bureau Scores do not use the following information: Ethnic group, Religion, Gender, Familial Status, Disability, Nationality, Age, Marital Status, Income, Address.

How can I find out my Risk Assessment Indicator?

Farmers believes in your right to privacy. While I can tell you what your indicator is, no one at Farmers, including me or any member of my staff, has access to your credit report. Your credit report is available from the credit bureau that provides the information used to develop your Risk Assessment Indicator.

Can I improve my indicator and, if so, how?

You can improve your indicator over time by using credit responsibly. A Risk Assessment Indicator is a snapshot of your insurance risk picture based on information in your credit report that reflects your credit payment patterns over time, with more emphasis on recent information.

To improve an indicator, Fair, Isaac & Company recommends you should:

  • Pay bills on time. Delinquent payments and collections can have a major negative impact on an indicator.
  • Keep balances low on unsecured revolving debt like credit cards. High outstanding debt can affect an indicator.
  • Apply for and open new credit accounts only as needed.

It’s also a good idea to periodically obtain a copy of your credit report from the three major bureaus to check for any inaccuracies.

What if I am turned down for insurance or my premium increases as a result of my indicator?

The Federal Fair Credit Reporting Act (FCRA) requires that we tell you if we take adverse action based, in whole or in part, on information contained in your credit report. We must give you the name of the credit bureau that provided the information and advise you of certain rights you have under the FCRA so you can challenge any errors that might appear on your credit report.

What if the information in my credit report is wrong?

If you find an error in your credit report, you should report the error to the credit bureau. The credit bureau must investigate and respond to your request. If you are in the process of applying for an insurance policy, you should immediately notify Farmers about any incorrect information in you report. Small errors may have little or no affect on the Farmers Risk Assessment Indicator. If there are errors, the credit bureau will send Farmers a new score once they are corrected. When the credit bureau reports the new score, Farmers will apply any changes to rates or eligibility for other companies retroactively to the original application or renewal date.

Make sure the information in your credit report is correct by reviewing your credit report from each credit bureau at least once a year. Call these numbers to order a copy (a fee may be required):

Equifax: (800) 685-1111
Trans Union: (800) 888-4213
Experian (formerly TRW): (888) 397-3742

Risk Assessment Indicator facts and fallacies:

Fallacy: With Farmers Risk Assessment Indicators, computers are making the underwriting decisions.

Fact: Computers don’t make underwriting decisions, people do. While a computer does calculate a Farmers Risk Assessment Indicator, the indicator is often only one of several pieces of information that underwriters use to help make a decision on new and renewal policies. We assess the importance of each of these factors and charge the appropriate price based on that information.

Fallacy: A poor indicator will haunt me forever.

Fact: Just the opposite is true. A Farmers Risk Assessment Indicator is a numerical score based on credit report information. Your indicator changes as new information is added to your credit bureau file. Over time, your indicator changes gradually as you change the way you handle your credit responsibilities. Because recent credit information is more predictive than older information, past credit problems will impact your indicator less as time passes. Farmers typically requests a current indicator when you submit a new application so they have the most recent information available.

Fallacy: Farmers Risk Assessment Indicators are unfair to minorities.

Fact: Fair, Isaac & Company, whose model is used to develop Farmers Risk Assessment Indicators, reports that these indicators do not consider ethnic group, disability, religion, gender, marital status, nationality, age, income or address. Only credit-related information is included, and its use is governed by the Fair Credit Reporting Act.

Fallacy: My Farmers Risk Assessment Indicator will be hurt if I contact several insurance companies who each access my credit report.

Fact: Insurance company requests, or “inquiries”, are not considered by any evaluation model used by Farmers or by any company that uses the risk evaluation models produced by Fair, Isaac & Company, the designer of the risk evaluation model used by Farmers.

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