Posted On: May 28, 2008, 4:19 pm CDT

Posted By: Patrick Butler

This statement supplies the economic logic—the why—to explain what causes the strong correlation of more auto insurance claims with lower credit scores. (The explanation accords with the factual findings of the 2007 Federal Trade Commission report.)

Not only lower credit scores but every group indicator of tight budgets (e.g. lower income zip codes, lower paid occupations, no-prior insurance, use of premium installment plans) must predict more miles per insured car year for the group and therefore more claims per 100 car years for insurers to pay. Why? Because pay-by-the-car, all-you-can-drive premiums cause financially constrained drivers to insure fewer cars and drive each more miles.

For high car insurance premiums there is no such thing as "no cause." By default, drivers with financial problems are currently assumed to be negligent drivers. NOW posits instead that these drivers are no different from other drivers but are economizing by insuring fewer cars, which must lead to high car insurance prices. As ability to pay goes down, premiums go up.

Further discussion can be found at www.centspermilenow.org.

Patrick Butler, Ph.D.
Insurance Project Director
National Organization for Women Foundation