There are many arguments that can be made for the case that car insurance rates are discriminatory. For one, they discriminate based on age - the oldest and the youngest pay more, even if they are good drivers. For another thing, they discriminate on the basis of gender, with women paying less for insurance than men. They even discriminate against unmarried people, and since certain groups are not allowed to marry, this amounts to discrimination against them as well.
Car insurance companies do not hide the fact that they "discriminate" on the basis of age, gender, or marital status - although they would prefer to call it something other than discrimination. However, they steadfastly deny practicing racial discrimination, a practice that was once commonly known as redlining. But consumer advocates are now mounting a case that car insurance credit scoring models take discrimination to entirely unacceptable levels - discriminating on the basis of age, income, and even race.
Car insurance companies do not hide the fact that they "discriminate" on the basis of age, gender, or marital status - although they would prefer to call it something other than discrimination. However, they steadfastly deny practicing racial discrimination, a practice that was once commonly known as redlining. But consumer advocates are now mounting a case that car insurance credit scoring models take discrimination to entirely unacceptable levels - discriminating on the basis of age, income, and even race.
Using Credit to Determine Car Insurance Rates
In the early nineties, the credit scoring company Fair Isaac & Co. (better known as FICO) wanted to drum up more business, so it approached car insurance companies about using credit scores to determine their customers' premiums. Many car insurance companies took FICO up on its offer, and sure enough, FICO was able to show a correlation between certain credit behaviors and increased insurance risk. According to insurance scoring proponents, having bad credit makes someone more likely to engage in risky behavior, and it also indicates a greater probability of outright fraud.
But what's really fraudulent is the secretive nature of credit and insurance scoring. In fact, a recent survey conducted by the Government Accountability Office found that two-thirds of consumers did not know that their credit was a factor in their car insurance rates. And how could they know? Few car insurance companies share this information with customers, and none of them detail their scoring methods. While some simply use the standard (and secretive) FICO formula, others have developed what they consider to be more correlative insurance scoring methods that can penalize people for engaging in normal consumer credit behavior. In other words, you could have a good credit score, but if one particular action that FICO thinks is neutral or even positive is found to be correlative to insurance claims, you could get hit with higher car insurance rates.
But what's really fraudulent is the secretive nature of credit and insurance scoring. In fact, a recent survey conducted by the Government Accountability Office found that two-thirds of consumers did not know that their credit was a factor in their car insurance rates. And how could they know? Few car insurance companies share this information with customers, and none of them detail their scoring methods. While some simply use the standard (and secretive) FICO formula, others have developed what they consider to be more correlative insurance scoring methods that can penalize people for engaging in normal consumer credit behavior. In other words, you could have a good credit score, but if one particular action that FICO thinks is neutral or even positive is found to be correlative to insurance claims, you could get hit with higher car insurance rates.
Why This is Unfairly Discriminatory and What You Can Do About It
Government studies in Missouri, Texas, and Washington have found that insurance scoring has a disparate impact on young people, the poor, and racial minorities. Why? Because many of these proprietary formulas count the use of "alternative financing" against you, even though FICO doesn't. Since young people, the poor, and racial minorities are more likely to use alternative financing, insurance scoring disproportionately affects them, and consumer advocates are fighting these scoring models in court.
Who knows if insurance companies will continue using these scoring formulas once the legal dust settles, but in the meantime, there is something you can do - shop around. Not every car insurance company uses credit information in the same way, and you could save hundreds of dollars each year by finding the insurer who views your credit history most favorably. For example, a Consumers Reports study found that a customer with a neutral insurance credit score had identical premiums with two companies, but after altering his credit information, his premiums went up by 29 percent with Company A, but a staggering 47 percent with Company B!
Are you with a Company B? You probably don't know. The only way to find out is to get multiple quotes until you find the best car insurance rates. Luckily, carinsurancerates.com makes it easy to do.
Who knows if insurance companies will continue using these scoring formulas once the legal dust settles, but in the meantime, there is something you can do - shop around. Not every car insurance company uses credit information in the same way, and you could save hundreds of dollars each year by finding the insurer who views your credit history most favorably. For example, a Consumers Reports study found that a customer with a neutral insurance credit score had identical premiums with two companies, but after altering his credit information, his premiums went up by 29 percent with Company A, but a staggering 47 percent with Company B!
Are you with a Company B? You probably don't know. The only way to find out is to get multiple quotes until you find the best car insurance rates. Luckily, carinsurancerates.com makes it easy to do.
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