While I’m glad Tribune columnist Eric Zorn contacted me for his “What does my credit rating have to do with my driving?" on how U.S. auto insurers price their policies, he mischaracterized my remarks on the Consumer Reports article on the same topic.
Numerous studies by state and federal governmental agencies, including the Federal Trade Commission, have found that a driver’s credit-based insurance score, which is derived from a person’s credit history, is a proven, accurate and statistically irrefutable indicator of how likely that driver is to file a future claim and the potential cost of that claim. In fact, a driver’s moderate-to-strong credit history may favorably offset other rating factors where they fare poorly, such as their driving record.
Insurance regulators in 47 of 50 states allow auto insurers to employ credit-based insurance scores when pricing a driver’s policy. Credit profiles are entirely blind to race, ethnicity and income.
Zorn mischaracterized the role that marital status plays in the determination of auto rates. There is no such thing as a “widow penalty.†Married individuals receive a discount because their losses are demonstrably lower than single people.
Zorn made it appear as though price optimization is a new concept. Yet it is used widely in many or most markets, and represents an innovation in pricing models. The controversy over the use of price optimization has erupted despite any discernible or detectable disruptions in auto-insurance markets. Indeed, an actuarial task force appointed by the National Association of Insurance Commissioners found that price optimization can promote rate stability, lowering the cost of providing coverage over the long run, and lead to larger policyholder longevity discounts over time.
It is certainly true that over time the models insurers use to determine prices have become more sophisticated. Insurance is no different than every other industry in that respect. Policyholders have been the direct beneficiaries. Increased sophistication means that rates are more accurate than ever before, reducing subsidies and allowing insurers to offer more quotes to more customers than ever before. U.S. auto-insurance markets are extremely competitive â€" a fact that can only benefit drivers.
â€" Michael Barry, vice president, Media Relations, Insurance Information Institute, New York
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