Use of Credit in Insurance Scoring
What is it?
The Federal Trade Commission conducted a study that shows a strong correlation between credit history and the likelihood of future losses. The studies indicate certain credit characteristics are predictive of future claims experience. Studies conducted by State Farm®, using its own data and scoring models, produced similar results.
While it has been shown that certain credit information is predictive of future insurance claims, the reasons for this correlation is not entirely clear. Nonetheless, others have offered their thoughts on why this correlation exists, including the Insurance Information Institute and the Casualty Actuarial Society.
What do others say?
- Credit Scoring — Insurance Information Institute white paper
- "The Impact of Personal Credit History on Loss Performance in Personal Lines" by James E. Monaghan [PDF-1MB]
What is the position of State Farm?
You deserve the best value in car insurance, backed by our financial strength. We believe value means outstanding customer service, claims paying ability, around-the-clock accessibility and having the right coverage at a competitive price. The price you pay for car insurance is influenced by a variety of factors.
State Farm looks at the driving record of each driver. A person's previous driving record is one predictor of future loss experience. Then, we weigh a person's driving record in combination with a variety of other information, including certain elements of credit history, in our overall review of an application and renewal of car insurance.