Root uses meeting to push for elimination of credit scores to set auto insurance rates

Mark Williams
The Columbus Dispatch
Columbus insurer Root is calling for an end to the use of credit scores to set auto insurance rates. Posting these signs around the Greater Columbus Convention Center were among the things that Root did to raise awareness of the issue during the meeting of the National Association of Insurance Commissioners.

An auto insurer is giving the industry an earful for using credit scores to set a driver's insurance rate.

And Root is doing it in its home town where the National Association of Insurance Commissioners held it summer meeting. 

"For those who aren’t wealthy or have a thin file, the system means paying more because of who they are, rather than how they drive," Root CEO and co-founder Alex Timm told a special committee that the association has formed to study race and insurance on Sunday. "An unfair system becomes more unfair when race becomes a factor." 

The association's four-day meeting drew about 700 people to Columbus while another 1,250 tracked it online. It wrapped up Tuesday.

The Bottom Line: Study shows why credit scores can be so valuable when it comes to auto insurance

Credit scores are among a number of factors most insurers consider when setting rates.

Root isn't among them.

The company was founded on the notion of using technology to come up with a fairer way of selling insurance. Drivers download the Root app and then drive. Root then determines whether the person drives well enough to warrant coverage and prices the policy.

Timm told the committee that the use of credit scores entrench bias into pricing.

"I want to see a world where we don’t use demographic factors that are beyond a driver's control to set their car insurance rate," he said. "Where drivers are priced individually on their behavior and risk, not as part of a group because of where they work or their education level." 

Columbus auto insurer Root has put up messages around the Greater Columbus Convention Center to protest the use of credit scores to price auto insurance during the summer meeting of the National Association of Insurance Commissioners.

Timm's testimony before the committee wasn't the only thing that Root did to call attention to the issue.

Root bought a full-page ad in the Sunday Dispatch addressed to the committee, put up messages around the Greater Columbus Convention Center where the meeting was held, and took over Mikey's Late Night Slice and turned it into the "Unfair Slice," where Root met with those attending the meeting and others to talk about the issue.

In his testimony, Timm cited the case of a 30-year-old Guatemalan-American living in Washington, D.C. Because of a credit score in the low 500s, he receives quotes for insurance of about $350 a month for minimal coverage on a used car. His only ticket was for a broken taillight.

"His rate shouldn't be that high," he said.

California, Hawaii, Washington, Maryland, Massachusetts, Utah, Michigan and Utah prohibit the use of credit scores in setting rates, according to the association.

Timm pushed the committee to investigate the issue and come up with a model law that can be used by commissioners and legislators can use to create what he called a fairer pricing system for insurance.

The industry has defended the use of credit scores, saying there is a correlation between credit scores and claims. The lower the score, the greater the odds that the driver will file a claim, the industry has argued.

Insurers use credit scores differently to rate drivers.

"Regulators in more than 40 states allow auto insurers to used credit-based insurance scores as a rating factor," said Michael Barry, spokesman for the Insurance Information Institute, an industry group. "Regulators agree with actuarial studies that show how a person handles his or her financial affairs is a good predictor of whether they'll file a claim."

@BizMark Williams

 NAIC provides expertise, data, and analysis for insurance commissioners to effectively regulate the insurance industry and protect consumers.

Mileage-based insurance gets fresh look from drivers staying at home

As you know, credit-based scoring is currently used by every major auto insurer in the country as the main factor to price policies. Under this system, those with lower credit scores are often forced to pay more, even if they are the safest drivers on the road. 

More than anything else, credit scores entrench bias into pricing. But its effects are not felt equally.