secrets of car insurance

The cover story of the September 2015 issue of Consumer Reports magazine claims that in 47 U.S. states, a driver’s credit score has more of an impact on car insurance premiums than their driving record. In other words, a lousy driver with excellent credit often pays cheaper premiums than a perfect driver with mediocre credit.

Using an unmarried driver in Kansas as an example, Consumer Reports found that having 1 moving violation would increase the premium by $122. But a credit score that was considered just “good” (as opposed to “excellent”) would increase it by $233, even if the driver had a flawless driving record. And a poor credit score could add $1,301 to their premium, on average.

And of course, there’s no transparency. The credit scores concocted by insurers are nothing like the FICO score we're familiar with, and unlike our regular credit score, they're kept secret from us and we have no right to see them.

California, Hawaii, and Massachusetts are the only states that prohibit insurers from using credit scores to set prices. In those states, insurers base premiums largely on a consumer’s driving record, the number of miles driven per year, and other relevant factors.

As I see it, there are 2 problems with this system:

1) Good drivers are forced to pay more than their fair share of accident costs, and end up subsidizing the reckless behavior of bad drivers

2) Bad drivers are not held fully accountable for their dangerous behavior, giving them less of an incentive to drive safely. Inevitably, the streets are not as safe as they could be.

Quote: Evenbob

I've had car insurance every day of
my life for 50 years. It was State Farm
for all those years until 2008. Then
all of a sudden, for no reason, SF
doubled my rate. No accidents, no
tickets, no explanation.

Because there's no transparency, it's impossible to know why they did this.

But here's one possibility: according to Consumer Reports, the insurance companies are now experimenting with "price optimization." Price optimization basically means that the company tries to predict how high they can increase the premiums of an existing loyal customer without losing that customer's business. (It's legal in 44 states.) They collect demographic data on the customer, really weird stuff unrelated to cars: how many iPhones has this guy purchased? Is this guy paying Comcast for TV service when he could be getting a cheaper rate from DirecTV? They're trying to figure out how well you'll tolerate getting screwed.

In your case, they should have gambled on a modest increase you wouldn't notice, like $25 or $50 annually. Doubling your rate was a stupid move.

Quote: reno

The cover story of the September 2015 issue of Consumer Reports magazine claims that in 47 U.S. states, a driver’s credit score has more of an impact on car insurance premiums than their driving record. In other words, a lousy driver with excellent credit often pays cheaper premiums than a perfect driver with mediocre credit.

As I see it, there are 2 problems with this system:

1) Good drivers are forced to pay more than their fair share of accident costs, and end up subsidizing the reckless behavior of bad drivers

2) Bad drivers are not held fully accountable for their dangerous behavior, giving them less of an incentive to drive safely. Inevitably, the streets are not as safe as they could be.

I just switched carriers. Mainly to save on my homeowners. The guy took my info and said he would call back. Seems I am a better risk than he is. I asked him what they were using and he said it was some kind of system that is a blend of credit rating and driving record. IIRC it was a scale of 1 to 30 with 1 being the best and I would assume like FICO a bell-shape meaning harder to go 10 to 9 than 15 to 14.

When I was in auto loans they had an insurance division that was the heart of the company. CEO said they were starting to use credit history to rate people. This was 2007. I agree with his point, the correlation is there, risk wise. There is the occasional person with a credit issue due to something less than their fault who are good drivers, but the reality is those with bad credit are not as careful on other things. This is the same reason bad credit can cost you a job offer or promotion.

No idea how insurance is priced in mexico. I have two insurance agents, and switch between them if the premiums go too high.

BTW, a few years back I sold a car to a coworker. The insurance for it was paid and would last 3 more months. Her husband totaled it two days before it expired.

It still easy to kill your current plan and go with something else. More than you can usually say with other services. Nothing to disconnect.

Very interesting. My car insurance has always been less than half the rate of my friends that are about the same age and drive similar cars. Maybe all of their credit is much worse than mine. I had no idea credit score was correlated to insurance rate.

I wish it was correlated to Life Insurance, no one will issue me a policy.

Quote: DRich

I wish it was correlated to Life Insurance, no one will issue me a policy.

Once you're 50, Alex Trebek will give you a policy.

Quote: DRich

I had no idea credit score was correlated to insurance rate.

It's correlated to everything now. Renting
an apartment, getting a job, getting a
promotion, leasing a car. I asked the
owner of a gas station quickie mart
what was the first thing he looked at
when taking job applications. He said
the credit report. If it was bad, the
person doesn't have a chance of being
hired.