T.A. Swain Insurance Group, LLC

Your credit score can effect how much you have to pay for insurance. Unless you live in California, Hawaii, or Massachusetts, insurance companies are using what they call a "Credit Based Insurance Score" as a factor in determining how much you pay for your insurance.

Many of you may be asking, "What does my credit score have to do with my driving?"

Excellent question, indeed. I found the answer surprising and you may as well.

As we are all too aware, the insurance industry relies heavily on statistical analysis in determining what price to insure a risk. So, it should come as no surprise that the rationale behind using an individual's credit score in determining their insurance rates comes from statistical research. It's the results of the research that I found surprising. The gist of it is: "...the statistical correlation
between incurred losses and credit score is extremely high and statistically significant.
" This quote comes from a published report on the University of Texas (pdf) 2003 analysis. The FTC followed up with their own report to Congress in 2007 that, by majority, concurred with the earlier University of Texas study. 

However, what's interesting to read is FTC Commissioner Pamela Jones Harbour's Dissenting Statement (pdf). Essentially Commissioner Harbour's dissent has to do with the data and methodology in which the data was used. Her main argument regarding the data is that it was incomplete and came from carriers themselves. As for the methodology, Commissioner Harbour highlights that because the data received from the insurance companies was incomplete researchers had to make up variables to fill in blanks.

This is akin to when you hear about a pharmaceutical company providing their in-house research to the FDA for approval of a new drug. It's inherently biased. Commissioner Harbour is dissenting because the data they used is biased, incomplete, and her colleagues filled in unknowns (blanks) with fabricated variables.

Your credit score is being used as a factor to determine how much you pay for insurance because of a statistical correlation. Many of you may remember in high school of learning the difference between Correlation vs Causation. Just because of a statistical correlation does not mean one causes the other. To prove this point here is a recent article by Alex Hutchinson in The Globe and Mail: Statistics and coincidence: When good science loses its way -

"What you may not know is that if you compare U.S. Department of Agriculture data on per capita cheese consumption since 2000 with the number of people who die each year from getting tangled in their bedsheets (more than 800 in 2008, according to the Centers for Disease Control and Prevention), you get an almost perfect match.

Apparently the more mozzarella we scarf, the more people meet this ignoble end. The correlation between the two data sets is 95 per cent, which indicates that they rise and fall in near-perfect sync."


Here's a graph showing the high correlation between the decreased pirate population and global temperatures:

There you have it. Policymakers believe the correlation between your credit score and potential claims is valid enough to allow insurance companies to use it in determining what rate they charge you. Don't be surprised if eating cheese before bed is never legislated against (it would cost cheese manufacturers too much money) or, even better, we start finally realizing that a decreased population of pirates is the reason for Global Warming. After all, there is a strong statistical correlation for both.

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