Secrets of car insurance prices

What's worse: a poor credit score or a DWI conviction? You won't believe how car insurers see it.

Published: July 30, 2015 05:45 PM

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You probably have no doubt that driving while intoxicated (DWI) is one of the most dangerous and irresponsible offenses. But in most states, car insurers treat people with a poor credit score worse than a drunk driver, according to a two-year Consumer Reports investigation of more than two billion car insurance price quotes. 

In Florida, for example, a group of eight hypothetical adult single drivers with a clean driving record and poor credit paid $1,552 more on average than if the exact same drivers had excellent credit and a DWI conviction. 

That's just one of many concerning secrets of car insurance prices in our new report "The Truth About Car Insurance, which has a special feature that shows how insurers' use of credit scores can raise premiums in each of the 47 states and the Disctrict of Columbia that allow the controversial practice. (Three states, California, Hawaii, and Massachusetts, prohibit insurers from using credit scores to set rates.)

But you might not even be aware that most car insurers use credit scores to determine how much of a premium you'll pay or that they rifle through your private credit report to cherry-pick 30 of 130 elements that they claim can predict a driver's likelihood of filing a claim. The credit scores concocted by insurers are nothing like the FICO score you're familiar with, and unlike your regular credit score, they're kept secret from you and you have no right to see them.

Insurers' use of credit scoring is part of a concerning shift in car insurance pricing that bases premiums more on socioeconomic factors than driving habits, which is why Consumer Reports is asking consumers to join forces with us to demand that insurers—and the regulators charged with monitoring them—adopt price-setting practices that are more meaningfully tethered to how consumers drive.

Should credit scores affect premiums?

Let us and other readers know by adding your comment below.

Among the investigation's other key findings:

  • Price optimization, a new profit-generating practice employed by car insurers, which has been banned by seven states, gathers Big Data to assess how savvy a shopper you are, then scores you on how much of a price hike you'd tolerate without switching to a competitor.
  • Insuring a new teen driver doesn't have to break the bank. Our 55-year-old sample parents who added a 16-year-old boy to their policy saw their premium increase by 90 percent, nationally, on average. But the impact ranged widely, depending on the state, from only 16 percent in Hawaii to 159 percent in North Carolina.
  • Some of the most advertised discounts—such as the ones for bundling home and car insurance, or installing anti-theft equipment—actually don’t save people much money. Bundling home and car insurance would save our study's single policyholders just $97 a year; adding anti-theft equipment would save just $2 annually, when looking at national averages.

Read the full report for more findings and money saving advice.

—Jeff Blyskal (@JeffBlyskal on Twitter)


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