Check the score; credit scoring and insurance losses: is there a connection?

Over the past decade, the insurance industry has begun using credit histories to create credit scores for individuals who apply for or, sometimes, renew automobile and other insurance policies. Insurers use these scores in rate-making decisions, raising premiums for individuals with poor credit history and lowering premiums for those with good credit history. Is there, in fact, a connection between credit history and the potential to incur insurance loss? In examining the relationship between credit scoring and loss history, researchers must first ask whether a statistically significant relationship indeed exists between the two. And, second, is the information contained in the credit score "new" information not already used in pricing the insurance? A study by the Bureau of Business Research found that poor credit history strongly relates to insurance losses in the automobile insurance industry. Insurers' actuaries can use this relationship to better predict an individual's loss costs, to differentiate more effectively between classes of insureds, and to price their firms policies more commensurate with the risks that the policyholder brings to the insurer.