Using credit scores keeps costs down

The Aug 2 Michelle Singeltary column, “Insurance, credit link needs to be severed” misses the key findings of a Federal Trade Commission’s (FTC) study. There is a conclusive relationship between credit information and risk of loss; the use of credit enables consumers’ premiums to better match their risk of loss so lower-risk consumers pay less and higher-risk consumers pay more. As a result, the use of credit helps reduce the cost of insurance for most consumers.

Generally, consumers want premiums that relate to their risk of loss. To determine that price many insurers use a variety of familiar factors such as years of driving experience, previous claims, and age of vehicle, along with a credit-based insurance score to develop a more complete picture of a consumer’s risk characteristics.

In addition, Washington has strict laws and regulations governing what information insurers can consider in their rates and requires insurers to tell consumers how their credit score has affected their premium.

When given a choice last year, Oregon voters rejected a ban on insurers’ use of credit by nearly a 2-to-1 ratio, based in part on a Northwest economic study showing such a ban would raise rates for 60 percent to-70 percent of consumers – and result in lower-risk consumers paying more to subsidize higher risks.

Ignoring the connection would rob insurers of an accurate predictive tool – ultimately placing consumers into less accurate rating categories, forcing subsidization of higher risks by lower risks, and increasing the cost of insurance for most Washington consumers.

Kenton Brine

Northwest Regional Manager

Property Casualty Insurers Association of America

Olympia