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Is it Unethical for Insurers to Base Auto Insurance Prices on a Driver’s Credit History?

Many people do not know that they may be paying more than the average price for auto insurance due to their Credit score. Using a driver’s credit history to formulate the cost of their premiums is a controversial reality in the world of insurance. If you have a low credit score, your insurer will see you as high risk and charge you higher rates. Although this has been a long-time practice with Insurance Companies everywhere, it is now being called unethical and discriminatory. So, what is the argument for each side?

On the side of the insurance companies, credit score is a useful tool to help determine their clients’ level of risk. Statistically, drivers with lower credit scores are more likely to file claims with their insurers. But, why? Well, the reason is not exactly clear. Since the level of risk associated with a driver varies from cases to case, insurance companies will still agree with the statistics that are out there. And if a study shows that drivers with bad credit history file more claims, they will use that information to their advantage.

On the side of the drivers, there doesn’t seem to be a definitive proof that people with lower credit scores are a higher risk out on the road. How could one be related to the other? Many argue that people with credit troubles are typically people from low-income areas. They can’t pay their bills in full each month because they receive low wages. Therefore, their credit history looks bad. So, even with a clean driving record, they might still have to pay more than average for their policies.

Insurance companies have received backlash from low-income communities because of this practice. People believe that it is unfair for an insurer to charge a person more for auto insurance simply because they are poor. The insurance companies, on the other hand, use statistics as justification. By basing it all on numbers, it is difficult to bring an ethical debate into the issue. If you are someone with a low credit score, it is important that you shop around and get quotes from different insurance companies to make sure that you are not being taken advantage of. While credit history may be a somewhat helpful tool in determining policy prices, insurance companies should focus more on driver history because it directly relates to the chance of a claim being filed.


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This post first appeared on Insurance Navy Brokers | Auto, SR22 Insurance Q, please read the originial post: here

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Is it Unethical for Insurers to Base Auto Insurance Prices on a Driver’s Credit History?


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