Why Do Insurance Companies Check Your Business’s Credit Score?

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What Is a Credit Score?

A business’s credit score is a numerical rating that represents the creditworthiness of a business. In general, a score ranges between 300 and 900. The higher the score, the better. A good credit score falls between 660 and 725, and a score above 760 is considered excellent. 

A high business credit score indicates that the business is considered financially stable, reliable, and less risky. A low business credit score suggests your company may have a higher risk of defaulting on its financial obligations.

It is similar to a personal credit score, but it is specifically designed to evaluate the creditworthiness of a business rather than an individual. Business credit scores are typically calculated based on the business’s credit history, payment history, debt-to-income ratio, and other financial factors.

Beyond insurance providers, credit scores are used by financial lenders, suppliers, and other businesses to evaluate the risk of extending credit or entering into a relationship with a particular company.

How Do I Find Out What My Small Business’s Credit Score Is?

There are two primary credit rating agencies in Canada: Equifax and TransUnion. You can get a free credit report annually from both firms by submitting a request for one or subscribing to their services for instant access.

It’s worthwhile for business owners to regularly monitor their credit scores and reports to ensure accuracy and identify potential issues that could negatively impact their creditworthiness.

What Are Insurance Providers Looking For When Checking a Business’s Credit Score?

Your small business’s credit score says a lot about your business. In essence, it reflects how responsible you are at managing your debts.

There is a correlation between a business’s credit score and the likelihood of filing insurance claims. 

Businesses with lower credit scores could be  generally considered to be riskier and more likely to file claims. They may also face greater difficulty paying their insurance premium or a deductible if they must file a claim. That could be due to financial difficulties or a lack of resources, which may make it more challenging for the business to absorb losses without making an insurance claim. On the other hand, businesses with higher credit scores are typically considered lower risk and may be less likely to file claims.

Keep in mind many other factors can impact a business’s insurance claims and the annual premium an insurance provider charges, such as the industry your business is in, the nature of your operations, and the specific risks your business faces.

What Happens If I Allow an Insurance Provider to Check My Business’s Credit Score?

If you voluntarily agree to permit an insurance company to check your business’s credit score, it’s considered a “soft check”, meaning it will not affect your credit score. 

That’s different from a “hard check”, which happens if you apply for a new credit card or seek to extend your existing credit limit. If you have too many hard credit checks over a short period of time, they can hurt your business’s overall rating.

Since insurance companies also use a business’s credit score to assess its overall risk, it helps the insurance company to determine the appropriate premium rate for your business.

If you choose not to allow a credit score check on your business, the decision won’t affect whether or not an insurance provider will offer you a policy. 

Likewise, if you allow a provider to check your credit score and your business’s score is not strong, it won’t prevent your company from getting insured. The Insurance Bureau of Canada’s Code of Conduct prohibits insurance companies from cancelling or denying your business insurance because of a poor credit score.

In either scenario, your Zensurance broker cannot access your credit score or report.

Getting Business Insurance With or Without a Credit Score Check

If you have questions or concerns about an insurance provider conducting a credit score check on your business, get in touch with us.

Our knowledgeable brokers can explain how allowing or refusing a credit score check may affect your business insurance rate. Furthermore, we can find a way to get the low-cost policy you need regardless of your credit score or your decision to allow a check to happen.