Posted On: May 29, 2008, 10:57 am CDT

Posted By: Patrick Butler

First, lower insurance scores do predict higher claim frequencies, all else equal. The 2003 study by Epic Actuaries of 2.6 million car years of experience found that the cars of the lowest credit score owners produced twice as many property damage liability claims per 100 car-years as the cars of owners with the highest scores.

Now rate out this comparison: A household of adult drivers insures two cars traveling 10,000 and 20,000 annual miles. The owners get in a credit jam and economize by selling one car and driving the other 30,000 annual miles. The annual risk and its cost transferred to the insurer is exactly the same, but the expected claim frequency per car-year is now double what if was, while total premium is nearly cut in half, taking account of loss of a 20% multicar discount.

The car-year premium structure actually "tells" people needing to economize to insure fewer cars and drive each more. This scenario is diagrammed at www.centspermilenow.org