There's no doubt that insurance rates have gone crazy! Auto Industry Combined Ratios are still over 100%. "We need Telematics to help lower rates" is what I see over and over. I disagree! Don't get me wrong...telematics can help lower rates for sure. But this is what no one is talking about: Credit based insurance score factors outweigh telematics factors by 10x for many insurance companies. Sure, you might get a 25%, 30%, or even 40% discount if you have the best telematics score, when compared to the worst score. But if you live in a state where your auto rates are impacted by credit based insurance scores, the difference between the best and worst score for many insurance companies is anywhere from a 200%, 300% or even 400% difference in premium. Many that will read this are probably already in one of the top tiers for credit based insurance scores, so there's not much room to improve. However, those that are most vulnerable to insurance rate increases and least able to adjust their budget for living expenses may not be. So why aren't we talking about improving credit scores as a way to make insurance more affordable for those that need it most?
Jerry Tuttle
4mo
I know there have been studies showing credit scores correlate well with loss ratios, even when superimposed on an existing classification rating system. I do want to throw out for discussion that credit scores may possibly be unfair to some lower income and/or protected class levels. For example, if an individual pays bills and expenses mostly in cash, that individual's credit-worthiness may not be reflected in a traditional credit score. Credit scores may have a disparate impact by protected class level, but of course protected class level is not collected in the data. But that variable surely correlates with other variables used in credit scores. No easy answers. Comments?
Michael Dubin
4mo
Correlation vs causation. There is no logical basis for a decrease in an individual’s credit score causing a decrease in risk. Correlation does not mean that. However, if someone reduces their speed by 1% not only does their telematics score improve but their expected frequency and expected severity of loss each decrease by more than 1% and the world is a safer place.
Amy Waldhauer
4mo
I have always been uncomfortable with the use of credit score in auto insurance rating for the reasons you mentioned.
Absolutely agree, Kyle! Telematics can be a valuable tool, but addressing credit-based insurance scores is crucial. Financial literacy initiatives and credit score improvement programs could empower many drivers, particularly those facing affordability challenges.
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4moGood post, Kyle. The biggest issue with telematics, as I see it, is implementation/execution. Unmonitored or ignored telematics are pretty worthless. I know of one company, Orion Fleet Intelligence, whose mission is to address this deficiency by providing feedback and coaching to drivers and risk managers. I believe that telematics have a huge potential if utilized intelligently. I agree with you on the importance of credit scoring, but I suspect there are many ways to improve credit scores that would not translate to lower losses (i.e., gaming the system vs making material improvement to driver behavior).