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Peter M.J. Gross

Peter M.J. Gross

Assessing Driver Risk Without Using Credit Scores

Washington state's rule to ban the use of credit information when setting insurance rates should be no surprise for industry observers. Not only does the move restore previous restrictions that had been in place, it also follows broader trends across the United States. 

Several states have already adopted formal measures to control how insurance companies use credit data, which affects their ability to calculate auto, homeowner, and renters insurance rates.

One example is Colorado, which regulates insurers’ use of credit data as part of a broader effort to curb unintended discrimination in marketing, underwriting, and pricing insurance products. It requires insurers to document and explain their use of external data, which includes credit bureau information.

Washington’s rule is a reminder that regulators are paying attention to discriminatory pricing, regardless of whether it is intentional. Insurers must be prepared to demonstrate their processes for managing external data and the safeguards that they have implemented to prevent abuse. These explanations are more manageable when companies work with external data vendors that provide detailed information regarding data quality, coverage, and applicable use.

The regulatory scrutiny presents an opportunity for insurers to review their existing practices for insurance pricing. It may be possible to measure risk factors more efficiently by integrating new sources of external data:

  • TransUnion’s Driver Risk dataset considers a driver’s risk profile without reviewing credit bureau information. Instead, it uses public court records to determine whether a driver has a past history of traffic violations.

  • Telematics — information about a vehicle’s usage and its operator’s driving habits — is another type of data that can be integrated into auto insurance policy decisions. The most effective uses for telematics remain under debate.

  • Another option for auto insurance pricing involves looking beyond driver-related risk factors to consider broader geographic concerns. TNEDICCA is a data source that calculates location-based risk scores using comprehensive traffic accident information.

Regardless of how insurers update their processes for determining policy prices, the changes in Washington emphasize the importance of external data processes that are simultaneously robust and easy to explain. A trusted data partner like Demyst can assist with both of these goals, identifying useful data sources and integrating them into workflows that maximize accuracy and fairness

Browse Demyst’s catalog of data providers to find new sources of information for improved policy pricing.

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