Education makes consumers more accepting of credit-based insurance scores, U.S. survey says

Providing information to consumers about credit-based insurance scores increases acceptance and support for their use, results from a recent survey out of the United States suggest.

Risk management firm TransUnion, which conducted the online survey of 881 insured drivers across the U.S., argues that credit-based insurance scores work as a pricing tool for auto insurance, but many consumers remain hesitant about their use.

“The question of whether or not credit-based insurance scores work is closed,” Mark McElroy, executive vice president of TransUnion’s insurance business unit commented in a statement on the survey results. “The evidence shows they are strong predictors of loss and help insurers provide more accurate pricing and more competitive rates.

“While the value is clear to insurers, a question is sometimes raised about consumer acceptance,” he noted. “This research shows that consumers understand and appreciate the value of a correlated but non-causal factor, like insurance scores, if they are informed about the process and benefits.”

Without being given any information about credit-based insurance scores, 52% of respondents disagreed that insurers should be allowed to use those scores to determine whether to offer policies and how much to charge for premiums, the company noted.

Respondents were then given information about credit data use in determining insurance premiums and policies, including:

• “Studies show that about 45% of auto insurance customers pay lower premiums when insurance companies use credit information to help determine premiums, about 45% of customers see no change in their premiums, and about 12% pay higher premiums.”

• “Government agencies like the Federal Trade Commission (FTC) and the Texas Department of Insurance have conducted studies that found a strong connection between a person’s credit information and their likelihood of filing an auto insurance claim.”

• “When credit-based information is used to help determine auto insurance rates, more than three customers pay less for every one customer who must pay more.”

• “Insurance companies only consider information about how someone manages their credit; not how much money or income they have. Income is not part of the credit information an insurance company uses.”

After respondents received that information, the number of respondents who agreed with using credit-based insurance scores increased, TransUnion said.

The proportion of respondents who disagreed declined from 52% to 34%, and among those who agreed, the proportion rose from 23% to 38%.

“Generally, respondents believe insurance companies should be able to use information to set prices if that information accurately predicts which drivers are more likely to file claims, although support was stronger for using insurance scores to lower premiums for lower-risk drivers than increasing premiums for high-risk drivers,” the company also noted.

Over half (53%) also said they agreed that insurers should be able to use insurance scores to determine their premiums in the scenario where low-risk drivers would be charged less, according to the results.

About three quarters (76%) of those surveyed also said they agree that “responsible money management was an indicator of responsibility in other areas,” TransUnion said. The company also said that a majority of respondents believe their premiums don’t accurately reflect their true risk.

Fifty-nine percent of respondents also said they think their auto insurance premiums would go down if their insurers knew what kind of drivers they really are, TransUnion noted.