Insurers Defend Job, Education as Auto Insurance Pricing Criteria in N.J.
East News • June 13, 2006
Insurance industry representatives urged New Jersey lawmakers not to restrict insurers' use of certain rating variables including occupation and education in the pricing of auto insurance ...
Insurance Journal is not responsible for the content of the message below.
Subject: RE: Poor vs Rich
Posted On: June 13, 2006, 5:17 pm CDT
Posted By: J is wrong
Comment:
J -- you couldn't be more wrong on this issue. Insurance companies use dozens of "rating factors" to determine rate. In the old days, policies in the Preferred markets (i.e. the best customers) subsidized folks with poorer driving records. The reason this happened is because insurance carriers had very little data to use that separated the better risks from the poorer risks. Independent agents gave a tier recommendation for customers, and assuming the driving record wasn't too bad, the insurance carrier put the customer in the market chosen by the agent.
Then came the advent of credit scoring. The analytics show a clear and direct correlation between driving record and the likelihood of accidents (for auto policies) and the frequency of claims (for homeowner's).
In the new era of insurance scoring, carriers have dozens of of factors to use; everything from age, education, occupation, credit scoring to claims activity and where the vehicle is garaged. As a result, areas where local and state governments stay out of the insurance market, customers have the lowest rates they've ever had.
Remember when you were in school, and you had a teacher who took relatively few grades over the course of the quarter/semester/year? If one of your scores was low, it would have a serious effect on your grade at the end of the year. However, if you have a teacher who takes dozens of grades and averages them out, having one low score mixed in there isn't going to hurt you.
The markets that have the highest average prices are those with Departments of Insurance that heavily regulate markets. When you allow natural market competition to influence the market, the customer always wins. There are hundreds of empirical examples of how free-market capitalism always beats government control.
If you want insurance-specific examples, take a look at the state of MA. Most insurers have completely pulled out of the state and premiums are ridiculously high, all because of the way their government has tried to "regulate" lower prices.
People who tell you that education and occupation information is "targeting the poor," are either a) ignorant of the way economics works or b) deliberately inciting classism by using rich/poor rhetoric, usually with a polital spin. Most of the talking heads you see spouting off about big, evil insurance companies are looking for a political boon from their consituents, most of which fall into category a above.
Think about it logically -- would you rather be graded with 4 "test scores," or would you rather have 30? It's an easy choice, in my opinion.
Subject: RE: Poor vs Rich
Then came the advent of credit scoring. The analytics show a clear and direct correlation between driving record and the likelihood of accidents (for auto policies) and the frequency of claims (for homeowner's).
In the new era of insurance scoring, carriers have dozens of of factors to use; everything from age, education, occupation, credit scoring to claims activity and where the vehicle is garaged. As a result, areas where local and state governments stay out of the insurance market, customers have the lowest rates they've ever had.
Remember when you were in school, and you had a teacher who took relatively few grades over the course of the quarter/semester/year? If one of your scores was low, it would have a serious effect on your grade at the end of the year. However, if you have a teacher who takes dozens of grades and averages them out, having one low score mixed in there isn't going to hurt you.
The markets that have the highest average prices are those with Departments of Insurance that heavily regulate markets. When you allow natural market competition to influence the market, the customer always wins. There are hundreds of empirical examples of how free-market capitalism always beats government control.
If you want insurance-specific examples, take a look at the state of MA. Most insurers have completely pulled out of the state and premiums are ridiculously high, all because of the way their government has tried to "regulate" lower prices.
People who tell you that education and occupation information is "targeting the poor," are either a) ignorant of the way economics works or b) deliberately inciting classism by using rich/poor rhetoric, usually with a polital spin. Most of the talking heads you see spouting off about big, evil insurance companies are looking for a political boon from their consituents, most of which fall into category a above.
Think about it logically -- would you rather be graded with 4 "test scores," or would you rather have 30? It's an easy choice, in my opinion.