The Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance - Part I
National News • September 24, 2008
Following is the testimony presented by Lawrence S. Powell, PhD before the United States House of Representatives Financial Services Committee Oversight & Investigations Subcommittee on May 21, ...
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Subject: Re: The Impact of Credit-Based Insurance Scoring on the Avai
Posted On: September 25, 2008, 3:19 pm CDT
Posted By: Patrick Butler
Comment:
Because the current exposure unit for automobile insurance is the car-year (divisible into car-days) and not the odometer mile for private passenger cars, all measures of decreasing ability to pay work to predict more claims per 100 car years.
Not only lower credit scores but every group indicator of tight budgets (e.g. lower income zip codes and lower paid occupations) 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.
This explanation is further documented by my testimony last Fall to the Financial Services Committee, which, with academic papers on the subject, may be found at www.centspermilenow.org.
Subject: Re: The Impact of Credit-Based Insurance Scoring on the Avai
Not only lower credit scores but every group indicator of tight budgets (e.g. lower income zip codes and lower paid occupations) 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.
This explanation is further documented by my testimony last Fall to the Financial Services Committee, which, with academic papers on the subject, may be found at www.centspermilenow.org.