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When an Auto accident happens, is it due to the driver ability to drive or is it due to their credit score?

When an Auto accident happens, is it due to the driver ability to drive or is it due to their credit score?
By Jai Raju | June 24, 2022

One car collides into the front of another.

We all know in the USA, there are regulations for industries to not discriminate by race, gender, age and other classes. So it should not be a surprise that the Auto Insurance companies are not allowed to use Race as a parameter to charge you a premium. Well, on the surface it would appear they don’t. But if you take a deeper look, and connect a few dots you’ll see that’s exactly what they do – discriminate by race.

Context: Auto Insurance Industry as a case study

Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

— Wikipedia

Auto Insurance premium is a function of:

  1. Moving violations – number of tickets
  2. Loss history – prior accidents
  3. Location – some locations are highly populated and the more the number of vehicles on the road, the chances of accidents increases
  4. Age – like everything in life, learning to drive well takes time. So younger drivers are more likely to get into accidents than mature drivers.
  5. Gender – Women are a lot safer drivers than men.
  6. Marital status – Married drivers are safer drivers than the single category drivers
  7. Credit score – lower credit score people are more likely to file a claim than those of higher credit score.

There are several other variables that determine the result of how much you pay. At the core, it is a mathematical equation the data scientists come up with by relating these variables to the potential loss you may cause.
While all of that on the outset seems reasonable, note that there is no scientific proof for any of the above reasons for using the variables. The whole industry uses observational data to summarize statistically the impact of these factors on a potential loss from a driver. While these variables are correlated to the loss there is no proof that these variables and their impacts are the actual cause of the loss. When there is no causation it is unreasonable to use variables that are discriminatory.

Investigation:

Auto insurance protects you against a loss due to the operation of your vehicle, as such it is protecting you from a mistake you could make driving your vehicle. However, they use credit score as their most important variable in computing the loss. Said another way, the Auto insurance companies claim that, If you have a bad credit score, you are more likely to cause an accident. Here is why that claim is flawed:

  1. First of all, how is credit score related to your driving behavior?
  2. Second, credit score is determined by private, for-profit, publicly traded companies,whose goals are to turn a profit. Plus, Credit bureaus are under no legal requirement to be accurate, and the current credit reporting bureaus make a tremendous amount of mistakes at the consumers’ cost. A 2013 Federal Trade Commission study of the U.S. credit reporting industry discovered that 5% of consumers had errors. This disproportionately affects the poor as they cannot afford paying lawyers to get this corrected. A Congressional Research Service report stated that – consumers sometimes find it difficult to advocate for themselves when credit reporting issues arise because they are not aware of their rights and how to exercise them.
  3. Third, we have plenty of science and research that shows people of color disproportionately have lower credit scores. Also, In 2020, 18% of Black Americans had no credit score, compared to 15% of Latinos, 13% of white Americans and 10% of Asian Americans.

A similar argument can be made for the moving violations variable. There is plenty of research and science behind how the people of color are disproportionately pulled over by the police and given citations. Insurance industries have turned a blind eye towards it.

Parting thoughts:

Mobility is an essential part of a path to middle class. Auto insurance industries have a responsibility to treat all the drivers equally and assess their risk purely based on the drivers’ driving behaviour. They should not look for ways to discriminate.
Racism and Economy are tied together, racism has been about the economy has fueled racism. We often think of them as separate, putting them together is the only way to get the at the issues and challenges associated with racism2 – Angela Blackwell Glover

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