Big Data Drives Your Car Insurance Bill
What do you think is more important to your insurance premium: a clean driving record or bad credit?
In a groundbreaking new special report that reviewed 2 billion car insurance quotes across the country, Consumer Reports revealed that your spotless driving record and claims history may have less of an impact than you think.
Instead of emphasizing factors that are directly tied to risk, insurance companies increasingly rely on Big Data metrics like credit scoring in setting premiums. For years, advocates have known that insurance providers use secret credit scoring models. But, the key discovery in the Consumer Reports study is the scope of consumer data that insurers are using and how significantly these models impact what policyholders are paying.
For example, CR found that your credit score has a bigger impact on what you pay for insurance than a DWI conviction. In Texas, drivers with poor credit pay on average $991 more for car insurance than someone with a DWI conviction.
Beyond credit scores, insurers are using what they call “price optimization.” That’s really just a fancy way of saying they are mining your data to make assumptions about what kind of person you are. Where you shop, what brands you prefer, and your level of education are a few of the black-box factors that insurers are using.
“[B]ehind the rate quotes is a pricing process that judges you less on driving habits and increasingly on socioeconomic factors. These include your credit history, whether you use department-store or bank credit cards, and even your TV provider. Those measures are then used in confidential and often confounding scoring algorithms.”
Insurers have long defended their use of these metrics, saying that they correlate to a person’s risk level. But, doesn’t it just make sense that DWIs and tickets are a better indicator of a person’s risk than what brand of toilet paper they use?
The really dangerous part, though, is that consumers are in the dark. The models are secret. And, even if you could see them, there’s no way for you to improve your overall standing since every company uses data differently, emphasizing the multitude of factors in their own distinct, proprietary way.
You deserve better. Insurers should be required to judge you on your actual risk –not Big Data metrics that have nothing to do with what you do behind the wheel.
To learn more, read the entire Consumer Reports special report here.