FTC Study Proves Credit-Based Insurance Scores Reduce Costs
NAMIC has said for years that the practice encourages competition, enables insurers to offer coverage to more consumers at a fair price, and helps streamline the decision-making process. Credit-based insurance scores are one of many criteria insurers use to determine appropriate rates for policyholders. The practice does not, as some critics have asserted, unduly penalize certain demographic subgroups.
The study by the Federal Trade Commission puts to rest the arguments critics have lobbed at the insurance industry for years. It notes that credit-based insurance scores are effective predictors of risk under automobile policies, and their use results in benefits for consumers.
The report explicitly invalidates the notion that insurers unfairly target minorities for higher insurance rates through the use of insurance-based credit scores. One statement in the report says: “Credit-based insurance scores appear to have little effect as a ‘proxy’ for membership in racial and ethnic groups in decisions related to insurance.