Root Insurance vows to remove credit factors from policy ratings

The use of non-driving factors in calculating auto insurance premiums has stirred a lot of controversy amongst consumers who find the practice to be unjust and industry leaders who argue its necessity.

Now, one insurer is breaking from the status quo — Root Insurance recently announced that it will eliminate credit scores as a factor in its car insurance pricing model by 2025.

“Root was founded on the belief that good drivers should pay less for insurance since they are less likely to get into accidents. Eliminating credit scores is a major and necessary step towards dismantling archaic industry practices and making car insurance fairer,” Alex Timm, co-founder and CEO, said in a statement. “We are committed to working with our partners, regulators, and industry stakeholders to adopt this important change, and hope our announcement inspires others to join us in fighting discrimination, bias and systemic inequity in auto insurance. It’s time to drop the score.”

Root said in a press release that the use of credit scores and other demographic factors have negatively impacted historically under-resourced communities, immigrants, and those struggling to pay large medical expenses. Furthermore, drivers with safe records but low credit scores are penalized to the tune of $1,500 or more in annual premiums.

According to a survey conducted by Root, 66% of Americans do not know that a credit score is a factor in determining auto insurance prices. When informed of the utilization, 63% believe considering credit scores in insurance is unfair, and 93% think the industry should remove bias and discrimination from its pricing.

Root previously removed other potentially biased factors from insurance ratings, such as occupation and education level. The company will now begin the process of engaging regulators and other stakeholders to eliminate credit scores by 2025 or sooner.

Forty-seven states allow the use of credit factors in auto insurance underwriting, and more than 90% of U.S. auto insurers engage in the practice. Federal lawmakers also are considering the Prohibit Auto Insurance Discrimination (PAID) Act that would prevent insurance companies from using income, education levels, and other factors unrelated to driving history to raise rates for individuals with otherwise good driving records.

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