Since the 1990’s the automobile insurance industry has used credit history in their cost evaluation. It was widely assumed that people with low credit scores have a higher probability of incurring insurance losses. In May of 2003, the Texas Bureau of Business Research published an objective, non-partisan, study to show the accuracy of this assumption.
The study matched a large database, over 150,000 separate policies, of Texas-based insurance policies against the corresponding credit histories of the named insured in each policy. The study is purely statistical and did not record credit scoring based on income, racial, or ethnic data. Additionally, most of the insurance companies were not currently using policies affected by credit history.
The study found that, in fact, the average insurance losses reported is highest with credit scores considered low, or scores from 0 to 400, and lowest in the higher credit score ratings. Those with no credit history were found to be at higher risk of insurance loss incidences, although not as high as those with the lowest credit ratings.
So, in addition to there being a higher incidence in the number of insurance claims, dollar figure of the claim is statistically higher in those with low credit scores as well.
For the complete study, access:
The University of Texas at Austin
March 2003