Auto credit scoring not income-blind, says insurance study

OLYMPIA—The auto industry’s claim that credit scoring is an income-blind, color-blind tool for assessing risk may be in question, a study on the impact of credit scoring on consumers commissioned by the Office of the Insurance Commissioner (OIC) showed.

The study showed improving credit scores and decreasing premiums as income rises. Credit scores raise the average costs for poor policyholders relative to affluent ones.

The study also showed ethnicity to be a significant factor in credit scoring. However, due to differences among the three companies studied and the small number of minorities in the sample, the results are not broadly conclusive.

In general, however, Asian/ Pacific Islanders and whites enjoyed better credit scores than other minorities. When other minority groups scored significant differences from whites, the differences swayed in the direction of higher premiums.

Approximately 3,000 randomly selected consumers from three insurance companies were contacted by phone and asked questions regarding their ethnicity, marital status and income level. The three companies provided data on policyholders. These include age, gender, residential zip code, policy start dates and credit scores and/ or rate classifications.

The Office of the Insurance Commissioner did not identify the surveyed companies.

“The intent of the study was not to single out a particular company, but to see if industry-wide use of credit scoring in auto insurance results in discrimination against the poor or people of color,” Insurance Commissioner Mike Kreidler said.

“It’s clear that interesting questions have been raised that warrant further investigation,” he added. “The industry alleges credit scoring is an income-blind, color-blind tool for assessing risk. Our study indicates credit scoring is not blind to income and the jury is still out on how it impacts race.”

The OIC, however, emphasized the limitations of the study. Insurance companies vary widely in what scoring models they use, what population they apply the scores to and how they use the credit scores in underwriting and in setting rates.

The study researchers nonetheless concluded that the results warranted another study examining more companies and larger samples of consumers.

The study was commissioned by the OIC. The Washington State University’s Social and Economic Services Research Center analyzed the data.

Office of the Insurance Commissioner release, January 24

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