This controversial rating factor can mean 49% higher auto insurance costs

A new study from WalletHub reveals just how a controversial rating factor can affect premiums, and which insurers rely on it most.

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The use of non-driving factors in calculating a customer’s auto insurance premium has always been controversial, and perhaps none more so than the driver’s credit score.

Rewarding high-credit score consumers with lower premiums is a fairly standard industry practice and, according to a new report from WalletHub, it can make a great deal of difference. By obtaining quotes from five of the largest auto insurance providers in the country for two hypothetical shoppers, researchers determined that credit score can cause a surprising 49% fluctuation in premiums on average.

Those differences vary by both state and carrier. While drivers in Michigan, for example, can pay prices up to 115% higher depending on credit score, drivers in Connecticut only face a 15% fluctuation in premiums.

In Hawaii, California and Massachusetts, of course, such use of consumer credit score is illegal.

As for carriers, the report concludes that Farmers Insurance relies the most heavily on credit data, with a 62% fluctuation in premiums observable between consumers with excellent credit and those with bad credit. GEICO, meanwhile, relied on credit data the least, with a 32% premium fluctuation.

Other carriers considered include Progressive (60% fluctuation), State Farm (54%), and Allstate (52%). Researchers concluded that Progressive is the most transparent in its use of credit score, followed by Farmers, American Family and USAA Insurance Group.

To reach these conclusions, WalletHub researchers collected premium quotes from websites of five of the largest insurance providers in the US. They obtained quotes for two hypothetical consumers – one with excellent credit and one with no credit history. All other data remained the same.

Though WalletHub did not weigh in on the debate of whether credit should be considered as a rating factor by carriers, others have been particularly outspoken.

If you listen to J. Robert Hunter, Director of Insurance for the Consumer Federation of America and former Texas Insurance Commissioner, all underwriting variables other than driving-related factors are unfair.

“Actuaries must look for some logical connection to risk,” Hunter said. “Good classifications have both correlation and a good thesis—they need to logically relate. Let’s get rid of these factors that make rates go up for poor people for the benefit of the rich.”

Others maintain that consumers willing to take on significant financial risk are also more likely to take on driving risk and as such, higher rates are truly reflective of risk.
 

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