Credit-Based Car Insurance: The Research
One thing that bugs me is when people say things like "everyone spends 12% more with credit cards, no matter what" without actually reading any of the studies. This can lead to a telephone game where people use a study to support their pet causes 100% — nevermind the conclusions, assumptions, methodology, limitations, etc.
Part of the problem lies with news outlets where people get their statistical fodder. They rarely LINK to the sources for the statistics. If you are lucky, they provide just enough details to Google it.
For example, this article mentions several studies on credit-based car insurance.
Well, in case anyone is interested, here are some bookmarks from my Googling:
- May 2005 Credit Score Fact Sheet (TCAIS) - summary of positions.
- A Statistical Analysis of the Relationship Between Credit History and Insurance Losses (BBR) - thirteen page paper with 12 months of premium and loss history, includes various charts.
- The Relationship of Credit-Based InsuranceScores to Private Passenger Automobile Insurance Loss Propensity (EPIC) - a forty page actuarial study, including numerous exhibits.
Interesting Finding: at least in the 2nd study, drivers with No Credit Score Available had a loss ratio that was "7 percent higher than the average relative loss ratio for the dataset" which is not bad (IMO) compared to the people with the lowest credit scores.
I did not tackle the 3rd study, but I might have stumbled across the key point:
"The analysis indicates that insurance score is an important risk factor and that it significantly explains risk that is otherwise not being explained by any other risk factor."
-IF- true, eliminating credit-based insurance scoring could have repercussions.
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I also read an article where a politician said the link between credit scores and car insurance has been "disproven time and time again" or something to that effect. However, I don’t think they mentioned any specific research. I’ll have to check it later.
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Hmmm… this is a hard one for me. I have a good credit score and a good driving record, so for me it works out well. But the question of whether credit scores are an indicator of insurance costs is an interesting one. It reminds me of the old story about the hemlines of skirts rising with the price of gold - do they have anything to do with each other? No, but some how they do go together. (At least… that’s what I have heard. I admit, I don’t have any research to back it up.)