For decades, the car insurance industry has used credit score as a major factor in
calculating rates. By basing rates on demographic factors like occupation, education, and credit score, the traditional car insurance industry has long relied on unfair, discriminatory biases in its pricing practices. These practices unfairly penalize historically under-resourced communities, immigrants, and those struggling to pay large medical expenses.
But Root is different from traditional car insurance companies. We set out to reinvent a broken industry with a mission to make car insurance fair by basing rates on actual driving behavior. We believe your price should be determined by how well you drive, not who you are. As a first step toward this goal, we’ve never used occupation or education as a part of our insurance ratings—both of which are used by traditional insurers and can be the results of systemic bias.
But we recognize that it isn't enough. That’s why we’re announcing our commitment to removing credit scoring from our pricing model.
Credit scoring today
Why is it so important to eliminate credit scores from car insurance? Relying on credit scores disproportionately harms those who have been systemically discriminated against and reinforces the much bigger problem of inherent bias and systemic discrimination facing our country today. This means certain groups of people are being asked to pay more for car insurance, including:
- Historically under-resourced communities
- People struggling to pay large medical expenses
- People with errors in their credit history information
- People who have suffered an economic crisis
Despite the seriousness and scale of the problem, we have a big job to do to make people aware. Data from a new survey of Americans released by Root reveals that 66% of Americans don’t know that credit score is a factor in determining car insurance price. Once aware, however, 63% feel that it’s completely unfair, and 93% think it's important for the industry to remove bias and discrimination from its pricing.
And now, during a global pandemic, people’s credit scores are once again vulnerable. Massive unemployment, evictions, and late or missed bill payments—in tow with potentially skyrocketing medical costs—might all combine to negatively impact the credit scores of millions of Americans. People with low credit scores—even if they are the safest drivers—are being penalized to the tune of $1,500 or more in annual premium payments, according to The Zebra. With traditional insurers placing such an unnecessary emphasis on credit score, even the best drivers could end up paying more for insurance as a result.
Leading industry change
We believe car insurance carriers should no longer rely on credit scores to assess driving risk when there are more relevant and direct methods—like telematics—to do so. The best drivers should pay the lowest rates, and with the help of telematics technology, insurers are increasingly able to identify those drivers.
To make this important change a reality, we can’t do it alone. Today, credit scoring is allowed in 47 states (all except California, Massachusetts, and Hawaii), and it is used by the 15 largest auto insurers in the country and over 90% of all U.S. auto insurers. Regulators and legislators determine what insurance companies can and must use to set rates on a state-by-state basis, so any new scoring models will need to receive approval through regulation or legislation.
With today’s commitment, we are beginning the process to eliminate credit scoring from our models by 2025. We will be engaging with the industry, lawmakers, regulators, consumers, and other stakeholders to join us in making this important change happen to eliminate credit bias from pricing models.
We believe that your price should be determined by how well you drive, not who you are.
It’s time to make car insurance more fair.
It’s time to drop the score.