TY - JOUR
T1 - Do Credit-Based Insurance Scores Proxy for Income in Predicting Auto Claim Risk?
AU - Morris, Darcy Steeg
AU - Schwarcz, Daniel
AU - Teitelbaum, Joshua C.
N1 - Publisher Copyright:
© 2017 Cornell Law School and Wiley Periodicals, Inc.
PY - 2017/6
Y1 - 2017/6
N2 - Property and casualty insurers often use credit-based insurance scores in their underwriting and rating processes. The practice is controversial—many consumer groups oppose it, and most states regulate it, in part out of concern that insurance scores proxy for policyholder income in predicting claim risk. We offer new evidence on this issue in the context of auto insurance. Prior studies on the subject suffer from the limitation that they rely solely on aggregate measures of income, such as the median income in a policyholder's census tract or zip code. We analyze a panel of households that purchased auto and home policies from a U.S. insurance company. Because we observe the households’ home policies as well as their auto policies, we are able to employ two measures of income: the median income in a household's census tract, an aggregate measure, and the insured value of the household's dwelling, a policyholder-level measure. Using these measures, we find that insurance scores do not proxy for income in a standard actuarial model of auto claim risk.
AB - Property and casualty insurers often use credit-based insurance scores in their underwriting and rating processes. The practice is controversial—many consumer groups oppose it, and most states regulate it, in part out of concern that insurance scores proxy for policyholder income in predicting claim risk. We offer new evidence on this issue in the context of auto insurance. Prior studies on the subject suffer from the limitation that they rely solely on aggregate measures of income, such as the median income in a policyholder's census tract or zip code. We analyze a panel of households that purchased auto and home policies from a U.S. insurance company. Because we observe the households’ home policies as well as their auto policies, we are able to employ two measures of income: the median income in a household's census tract, an aggregate measure, and the insured value of the household's dwelling, a policyholder-level measure. Using these measures, we find that insurance scores do not proxy for income in a standard actuarial model of auto claim risk.
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U2 - 10.1111/jels.12151
DO - 10.1111/jels.12151
M3 - Article
AN - SCOPUS:85018328414
SN - 1740-1453
VL - 14
SP - 397
EP - 423
JO - Journal of Empirical Legal Studies
JF - Journal of Empirical Legal Studies
IS - 2
ER -