3 secret ways insurers boost your premiums

Saving money on insurance premiums isn't as easy as boosting your deductible and avoiding unnecessary claims. Insurers take far more into account when setting your rates, including these three lesser-known factors:

Credit

You may know that your credit report information is used to create "insurance scores" that affect your premiums. What you don't know is exactly how that score affects what you pay.

That's because insurers don't have to tell you. Many use their own, proprietary formulas, which they aren't required to explain or disclose.

Your credit doesn't need to be lousy to cost you. Consumer Reports found that unmarried drivers with "merely good scores" paid up to $526 more each year compared to those with the best scores. In some states, credit scores mattered more than driving records in determining premiums.

California and Massachusetts prohibit auto and homeowner policy insurers from using credit data. Hawaii bans it for car insurance, while Maryland forbids it for homeowners coverage. In other states, however, credit data is used by the vast majority of auto and homeowners insurers.

Insurers and independent researchers have consistently found a relationship between credit scores and insurance claims, with better-scoring customers costing insurers less.

Price optimization

Insurers are using Big Data and sophisticated algorithms to determine your price sensitivity: In other words, how much they can hike your premiums before you bolt. The Consumer Federation of America, which decries the practice, says insurers may count the number of iPhones you buy and how often you switch cable providers, among other factors.

A 2013 survey of 78 large insurers found 45 percent used price optimization, with 29 percent planning to add it in the future.

Price optimization has long been used in other industries, including travel, but it's controversial for insurers that traditionally have set rates based on the risk of loss posed by the policyholder -- not how much profit they can wring from that customer.

Eight states have told insurers that price optimization violates their laws. Those states include California, Florida, Indiana, Maryland, Ohio, Pennsylvania, Washington and Vermont.

Longevity

You might think insurers would reward loyalty, but sometimes the opposite is true. Many insurers don't offer discounts for long-term customers, Consumer Reports found, and some even raised rates on those who stuck around.

In Texas, regulators found that people who kept the same insurer for eight years would reduce their premiums by 19 percent if they switched.

Shopping around is the key to containing insurance costs. Each insurer has different ways of assessing you, so don't assume you're getting the best deal if you haven't checked with several competitors.

  • Liz Weston

    Liz Weston is a columnist at NerdWallet, a personal finance website, and author of "Your Credit Score." Email: lweston@nerdwallet.com. Twitter: @lizweston.