Turning the Tide on Insurance Rates: Issues

Turning the Tide on Insurance Rates: Issues to Consider

Whereas it may seem that utilizing credit reports is a fair and effective method of determining rate structures for potential consumers, it may have some drawbacks that prove to be very costly. According to the Conning & Company study, auto insurers now employ credit scores as an accurate predictor of a person's risk profile and subsequent driving acumen. Although a person's budgetary history may shed some light on his/her spending habits, there is no direct correlation to that person's driving record and his/her chance of making a claim. In lieu of a distinct and direct causative link between credit history and auto insurance risk, auto insurers must take the following factors into consideration: age at the onset of credit history and a built-in institutional bias based on race and culture.

In contemporary America, more than half of all college-aged students possess at least one credit card, yet very few are taught how to manage it. According to recent study conducted at Princeton University, sociologists estimate that nearly of all students entering their sophomore year of college are paying an annual percentage rate of 18.9% on a minimum balance of two thousand dollars. It is estimated that one-third of all college-aged students graduating in the year 2006 will average between $10,000-$15,000 of credit card debt by the time they attain their first job. Of course, students are always offered low-yield introductory rates, but without a distinct management strategy or a personal financial counselor, many young people are driving their scores through a roof that they can't repair even by the age of thirty. Meanwhile, according to this newly developed rubric, they will now pay a heavier price in the area of auto insurance rates as well - even after the age of twenty-five!

Although the Conning article refers to insurance scores as "objective data," (which appears to be laughable) the article fails to consider that such scores are often dependent on economic status and an institutional bias against people of color and recent immigrants. African-Americans invariably report higher numbers on their credit scores and insurance rates compared to their white counterparts. In addition, since people of color and immigrants are more likely than middle-income Americans to live in high-risk urban areas where violent crime and stolen car reports are considerably higher, insurance companies have a built-in defense system to add to an already inflated score. In addition, the article also states, "75% of adults have good credit." This figure implies that since an overwhelming majority of adults have good credit, it is therefore a reasonable assumption that 25% of adults who have bad credit will bear the brunt of an inequitable system that is highly suspect and considerably unscientific. Let's remember that 25% of the American adult population translates to a figure of 50 million people!