The insurance industry operates on a simple principle: charging each customer a premium that accurately reflects their risk. But in their quest to predict this risk, they have come to rely on a deeply unfair and discriminatory tool: the personal credit score.
The use of credit-based insurance scores, which are heavily influenced by a person’s credit history, to set rates for auto and home insurance is a pervasive and unjust practice. It punishes people with low incomes for being poor, and it has little to do with a person’s actual likelihood of filing a claim. This practice must be banned.
Insurers argue that there is a statistical correlation between low credit scores and high claim rates. But correlation is not causation. It is far more likely that the same underlying factors that lead to financial struggles—such as job loss, a medical crisis, or systemic poverty—also increase a person’s likelihood of living in a higher-risk area or driving an older, less reliable car.
A low credit score is a reflection of financial hardship, not a predictor of irresponsible behavior. By using it, the industry penalizes a driver who has never had an accident but missed a credit card payment due to a medical bill, while rewarding a reckless driver with a perfect payment history. This creates a vicious cycle.
People with lower incomes are charged higher premiums, which makes it harder for them to maintain financial stability, which in turn keeps their credit scores low. It is a poverty tax, plain and simple. Insurance rates should be based on factors that an individual can control, such as their driving record or the safety features of their home, rather than on a proxy for their wealth.
