Root Insurance, a 5-year-old auto insurance startup that uses smartphone technology to understand its clientele’s driving habits, has pledged to eliminate credit scores as a factor in its car insurance pricing model by 2025.

Why should we care?

Root Insurance says the move will address a broken industry where rates are based on demographic factors including occupation and education, instead of driver behavior. A consequence of this bias in pricing is financial strain on vulnerable communities, the company said. Root Insurance claims that people with low credit scores, including those with stellar driving records, are being penalized by paying an extra $1,500 or more in premiums each year. Broadening access to credit is a challenge financial companies beyond insurance are looking to address, including lenders. A recent study from the National Community Reinvestment Coalition found that White and Black small business owners were treated differently when applying for loans. Bias in AI-based algorithms used for underwriting has also been highlighted in recent guidance from Consumer Financial Protection Bureau, which suggested that bias in the source data or model construction can lead to inaccurate predictions.