Every study done by anyone without an axe to grind shows significant correlation between credit scoring and claims filing. I would just like them to prove their allegations with numbers rather than their “feelings” about this method. Let’s also make it illegal to charge higher rates for credit cards when the score is too high. This discriminates against low income people. These credit scoring procedures have been filed and accepted by the various state insurance departments because they are statistically provable. In the end, how are we supposed to do business? Are we to clear all of our procedures with the great Robert Hunter?
They’re all missing the point. Today, approximately 45% of Americans fall into the scoring band range of 550 to 639 which is sub-prime. In fact, there are some executives who believe because of economic anomolies that this scording band range is their “sweet spot” so say the CEO of AmeriCredit. There is no corrulation between FICO scoring bands and claims, as FICO scoring bands can change in a heart beat by a borrower simply missing a payment while on vacation; a divorce and any number of other potential situations.
This is simply a scam by the industry to find ways to prop up their underwriting or lack thereof, by use of a basis which has none.
Credit histories and scores have been used by industries other than insurance and it’s been acceptable. The scores don’t discriminate – as a matter of fact, most companies have procedures in place to take into account sudden life-changing events like illness or divorce. The basic premise behind the validity of using the scores is a person’s behavioral actions – in other words, if they’re sloppy and careless with their finances, overspend and don’t pay their bills, the studies have shown that they are more likely to file claims, inflate expenses and basically defraud the insurance company. The scores are accurate predictors of their behavior – most folks that get into a minor fender-bender or have a small HO claim that falls below their deductible will pay to have the repairs done. Those that don’t manage their personal life well will not, and then the NEXT TIME they have a claim, it’s for a much BIGGER amount because they didn’t do any preventive work. If you want to look at an industry that didn’t examine credit scores all that well recently, turn your eye towards the mortgage industry. They lost their underwriting discipline and now they’re getting spanked.
Since the industry does not collect data on race and they are using a subjective method that applies exactly the same for all insureds, I don’t see how the term “discriminatory” could apply. If there is a disparate impact, that is a different matter. If so, going after insurance companies for using credit doesn’t fix the root cause.
Hey- this country was founded on feelings!!! It was feelings, and not hard work, persistence, and perseverance that make this a great place to live. It was everyone feeling that it could be a great place to live, then a genie came out of a bottle and made it so.
Without profits, the nation doesn’t profit. Nation doesn’t profit = nobody profits. I challange anyone to claim that our current standard of living is based off of anything other than people’s desire to make money.
Uh, hmm, let’s see. The word “race” or “racial” appears 6 times in the article. In addition, here is a quote from the article: “The Missouri study concluded that a consumer’s race was the single most predictive factor determining a consumer’s insurance score”
If you think it has nothing to do with the article, then I will not be able to have a logical intelligent conversation with you.
as a member of one of those minorities, it really pisses me off that you fuzzy headed liberals think that I am SUPPOSED to have a low score because of my minority satus. I am capable of handling my finances and just so happen to have a GOOD score.
Your post doesn’t refer to anything. It makes no sense. Race and genentics have what to do with what? Try reading your own post. Then we might have an intelligent conversation. But from your post I couldn’t actually assume that’s possible.
The insurance credit scoring model is different from a standard FICO score. A person’s credit score in regards to a credit card or mortgage will be different from his insurance credit score, which is used not to deny insurance but in conjunction with other underwriting tools, to derive the correct rate for that risk.
“This is simply a scam by the industry to find ways to prop up their underwriting or lack thereof, by use of a basis which has none.”
Just because you disagree with the actuarial soundness of this theory, does not make it a scam. Present your case with backup instead of ranting against the insurance industry which you are apparently a part of as you are posting on the Insurance Journal.
Fill in the blank. These things make a difference for a whole bunch of things (my grandparents were smart, my parents are smart, I’m smart… not a coincidence). A topic of this article (I’m presuming, since it’s written in the title) is Credit Scoring. Thus, using deductive logic, I could arrive at the solid conclusion that my post must be about credit scoring. Hmm, that was hard.
More power to you and maybe this might hit home to the others.
In comparing scores in lower, middle and higher income neighborhoods (forget race), we found that the scores in what we perceive as higher income areas are significantly lower than other areas. Why? Probably because a lot of the people living in the higher income areas are wanna be’s who are mortgagged to the max.
The only blank to be filled in with your posting is the one between your ears. You want to insult me when I simply asked for an explanation of what you meant. That’s your problem. My problem is that I took the time to try to figure out what your posting meant. Won’t happen again.
Race has nothing to do with your score, nor does income. In a very simple explaination, a score is simply a measure of how well an individual lives within their means and manage their credit.
as a u/w in the 60’s, we were able to discriminate against anyone for whatever reason. the insurance company you worked for set the rules-no liquor related industries, no gays or off the wall life styles, the list was endless. public pressure and new laws stopped that but the insurance industry has looked for ways to discriminate since. despite the rose colored morally superior people who swear they are not prejudiced, there is still prejudice everywhere. it is a fact that poor, minority, and blue collar workers have low credit scores for a number of reasons-seasonal work, recessions, laid off, etc. these people must eat and they feed their family at the expense of their credit. credit scoring gives the insurance industry the ability to discriminate against the same people they discriminated against in the 60’s. i was there-i saw it- i am still here and i see it happening again. different times-same discrimination.
Bottom line, this whole issue (scoring) can be drilled down to simple economics… apparently using some sort of scoring model must be a useful underwriting tool, otherwise it would be discarded. Why would the industry undertake the enormous expense (let alone the consumer backlash) if scoring did not make economical sense?
It was an interesting “race” for many carriers to get on-line with their own system when scoring became more commonplace. Anyone remember the mad dash some of the Mutuals made… just so they would not be inundated with low scoring risks? Now, all my (NY) carriers use some sort of scoring…
What a pile of %^&*! Where do you get such bull? Garbage letters from so called insurance professionals make me so angry. Are there predudiced people in insurance, of course. Just like in society in general. As far as I can tell they don’t run insurance companies. Keep living in the old days old timer.
Have to disagree DWT, it has strong correlations to race/ethnic background. Earning capacity and the discipline to live within your means has credible links to some ethnic groups. Nonetheless, that doesn’t make it discriminatory. Why is it that the race card is only played when one particular ethnic group doesn’t like something? I keep waiting for an American-American to holler discrimination. Hasn’t happened thus far but the country is only a couple hundred years old.
Poor people don’t get credit cards.When they do the Institutions charge them 3-4 times the interest rate as someone who has money.
Again Corporations favorable to the wealthy. They get free points,flights,gifts etc. while the poor guy tries to establish their credit to try and have a piece of the AMERICAN DREAM!
Maybe You should re-read the article.
Maybe your on of the one’s that’s been handed money from generation to generation. Race is mentioned in the article. Read more than the first and last paragraph!
The article specifically is on CBIS (look it up moron), not credit nor FICO score. Edu-ma-cate yourself before spouting off in defense of the “defens-less” as there is a distinct difference. I think there is a distinct dis-service for the crusaders looking for the next big witch hunt.
this discussion has come up many times in the last few months. and it seems to be a all or nothing argument.
I think people are under the assumption that if they have bad credit then instantly their rates will increase…but that isn’t necessarily so, is it? if you are indeed looking at other data (claims history, insurance history, DUI’s, speeding tickets, being dropped from a previous carrier, etc…) then having a low credit score would of course be one more reason (or mathematical reason) to increase someone’s rates. BUT, if somone has great driving record, good insurance history, premiums paid on time, etc…and bad credit, then that doesn’t necessarily mean it would result in an outrageous premium hike, but they may see an increase. correct? credit scoring is just another tool used in the equation, right?
Word, yo.
It honestly depends upon your carrier’s level of pricing sophistication. For the most part, credit information (in any form like a score) will not be the only factor in determining your premiums. It will more than likely be combined with relevant customer experieince data with the carrier (or previous claims, payments, etc.)
Yes, you are correct, scoring is just a part of the underwriting/rating process. One particular company that I work closely with admitted (to an agent board) that scoring only accounted for 18% of the entire rating matrix. They may have changed since but with the ever-looming Congressional backlash, I doubt they increased the percentage.
I continue to be amazed by the number of negative knee-jerk reactions to credit scoring without any substantive evidentiary support. Credit scores contain no information about race or income levels. It is simply the result of broad-based comparison of claim experience to credit scores that revealed a STATISTICAL CORRELATION between lower scores and higher claims experience. A statistical correlation is simply a mathmatical outcome, it does not identify a cause and effect (Studies show that when it is raining 98% of the people with umbrellas will open them. If 98% of the people open their umbrellas, it will not rain–nevertheless, statistical probability is that when 98% of umbrellas are open, it is safe to bet it’s raining!) Why do companies like credit scoring? A couple of reasons. First, it is the most accurate statistical correlation available, i.e. better than age, driving record, marital status etc. (this is a relative thing–Let’s say age has an 8% accuracy a s predictor and credit scoring 12%, that is a 50% improvement, good by any standard.) Second, it is fast and convenient. With a computer and your SSN, a company can generate a quote on line in minutes, if not seconds. This greatly facilitates the sales process particularly on the internetsales and agent sales. This convenience should result in more competitive rates by lowering sales costs and increasing predictability.
Don’t like credit scoring? Don’t just play the race card. If it is half as bad as suggested, there should be plenty of empirical evidence with with which to back up your claim of discrimination. Go find it and you will get a lot more respect for your position than from whining
I continue to be amazed by the number of negative knee-jerk reactions to credit scoring without any substantive evidentiary support. Credit scores contain no information about race or income levels. It is simply the result of broad-based comparison of claim experience to credit scores that revealed a STATISTICAL CORRELATION between lower scores and higher claims experience. A statistical correlation is simply a mathmatical outcome, it does not identify a cause and effect (Studies show that when it is raining 98% of the people with umbrellas will open them. If 98% of the people open their umbrellas, it will not rain–nevertheless, statistical probability is that when 98% of umbrellas are open, it is safe to bet it’s raining!) Why do companies like credit scoring? A couple of reasons. First, it is the most accurate statistical correlation available, i.e. better than age, driving record, marital status etc. (this is a relative thing–Let’s say age has an 8% accuracy a s predictor and credit scoring 12%, that is a 50% improvement, good by any standard.) Second, it is fast and convenient. With a computer and your SSN, a company can generate a quote on line in minutes, if not seconds. This greatly facilitates the sales process particularly on the internetsales and agent sales. This convenience should result in more competitive rates by lowering sales costs and increasing predictability.
Don’t like credit scoring? Don’t just play the race card. If it is half as bad as suggested, there should be plenty of empirical evidence with with which to back up your claim of discrimination. Go find it and you will get a lot more respect for your position than from whining
let’s see, i’m a white, female (single), low credit score, but great insurance history. if my current carrier decides to hike my rates that much, i would go shopping…just like i did the first time when i realized i was overpaying at state farm.
i originally had the knee jerk reaction, and still don’t completely agree with using credit scoring for AUTO INSURANCE, but at least I can understand that my CREDIT SCORE DOES NOT MAKE UP 100% of my premium.
but, in my opinion, (and this is purely for conversations sake), isn’t that like being charged twice for the same crime. i messed up with credit in college, i have definitely paid the price, now i could potentially be “charged” AGAIN for it by having my insurance go up.
either way…i won’t complain too much since it’s not 100% of the premium.
progressive insurance gave a presentation when credit scoring first came out and they showed graphs detailing the correlation between credit scores and accident ratios. it was impressive and it showed that credit scores ARE AN ACCURATE predictor of loss. there is no dispute on this fact. what they did not show was that the statistical graph was identical to the graph showing the correlation between the number of prior tickets and the probability of future accidents. so why duplicate the underwriting? in california ins. companies cannot use credit scoring for auto rating due to proposition 103 restrictions. what they can do, however, is restrict the monthly pay schedule, thus eliminating their undesirables.
All you agents/insurance companies can use any babble to say that credit scoring is a good tool in factoring insurance premiums but everyone knows behind the insurance companies smoke screens it is just a way to get higher premiums from those who can least afford it. Don’t compare a credit card company using scoring to choose a percentage rate, a credit card is something you CHOOSE and insurance is something you are REQUIRED to have. It is just another way for the insurance industry to beat down the poor, and sorry but race IS a factor and it is sickening that the insurance industry is allowed to get away with this!
No matter what your opinions are on this subject, I have a feeling if Credit does become a factor for premiums in all states, I bet you see a lot more uninsured drivers out there.
Credit scores don’t measure your ability to live within your means. Credit scores reflect how well you manage CREDIT–not income–and work on certain assumptions–including that all the info in them is correct. I know many people out there who have credit scores that look great–because they borrow from one source to pay off another, use balance transfers to move debts to cards w/introductory rates, etc–and while their scores may be temporarily high, in the end it always collapses on them. And when they start getting hounded by bill collectors, they are more likely to not pay things like insurance, because insurance companies just cancel them–we don’t take them to court. I’ve been driving over 25 years, I’ve never had a ticket, the only accident I ever had–20 yrs ago–was 100% the other person’s fault, and I’ve had one claim for a windshield in all that time. Do you think I’m a bad risk? But if my credit score is on the lower side, it will affect my rate. Also, for most people, if they are looking for insurance, they need it then–if they find out there are mistakes on their credit scores, they don’t have time to work on correcting them before buying. And as far as saying companies have built in ways to account for temp life changes–having worked in UW in the past, I know the way they deal with it is to put you in a higher risk anyway, because they say these life changes may negatively affect the way you drive. Your driving record should be the first and most important item in determining your rate. If they need the info, companies can also tell if a person has a lot of insurance lapses by running their DMV reports, so that could be part of the rating. If someone is new to driving and doesn’t have much of a driving record, then possibly credit scores can be part of the mix, as it may be a more relevant indicator for those drivers than others. But for people with established driving records, credit shouldn’t be an issue.
You have well established credit, and
you have never been late with a payment.
This guarantees that you have a high score – right?
Wrong.
Everyone has seen the incentives to open a new line of credit. Get 10% off your purchases with our card or get 10 cents off per gallon with our card. How many times have any of you taken advantage of these? Did you know that every time you do you actually hurt your credit score?
Then say you close those accounts. CLosing these accounts does not have an immediate impact on your score. It takes up to seven years for those accounts to fall off your credit report.
And there may be another drawback to closing accounts. Let’s say that you have 10 credit cards with a total credit line of $100,000. You only use 3 of the cards and have $30,000 on those three cards. Your total debt percentage is 30% to your limit. Now you close 5 of the unused cards. The percentage goes from 30% to 60%. Another bad indicator.
Now don’t get me wrong, I am actually in favor of credit scoring. What I think needs to be done however is that a better job needs to be done educating the public on what impacts their credit score and the impact that a bad credit score can have on them (and I am not talking about just insurance).
You are correct that we do not CHOOSE to buy insurance. But how could someone’s choice to get a credit card affect anyone but themselves? An over the limit fee does not affect someone else. But an auto accident affects those in ALL vehicles involved in the transaction. If credit card companies can use whatever scoring they want, why not allow insurance companies the same? No one complains when credit card companies raise their rates, why complain about insurance? When was the last time a credit card company went belly up due to its loss ratio? Let’s level the playing field and allow insurance companies to charge a small transaction fee each time you make a change in coverage, add or delete a vehicle or process your renewal and let’s just make those charges transparent for all to see. then you can complain about your rates, the underwriting criteria etc. and maybe you’ll have a valid case…but the insurance company bottom line can be protected and you won’t have to worry whether your rate was too high because of your poor credit or the color of your skin or where you live…charge everyone the same rate for coverage but allow several add ons; if banks and credit card companies no longer rely on making loans to make money, why should insurance companies only make money on premiums?
Here’s something I can’t figure out. All the people that claim this type of stuff is a scam and “is just another way for the insurance industry to beat down the poor” and take advantage of the “poor” or a ceratin race, etc… this does not make sense to me. Logically, if you wanted to take advantage of someone or scam someone, wouldn’t you go after the people that have the most money (i.e. the wealthy)?
Come on, use a little logic here. I highly doubt this is a scam because the industry would be scamming the wrong people. Do you really think executives sit around in a room and try to come up with ways of screwing the poor? Give me a break.
Why can’t you admit that a it is possible that wealthy people may be smarter and better at managing risks, better drivers, better handlers of money, etc? No, I’m not saying that this is true 100% of the time. But don’t you think it is a possibility?
Aren’t you satisfied enough by the fact that the wealthy pay nearly 100% of the federal tax? Are they receiving 100% of the benefit of the federal government? Of course not. So now you want the wealthy to pay for your insurance too? What’s next, national health care and a federal welfare program for seniors? Oh wait, we already have the latter.
So… insurance companies only exist to beat down the poor and promote racism? If insurance were a commidity like clothing or strawberries it would make sense to put it on sale occasionally, to try to get as many people to buy it as possible.
But it ain’t like selling widgets. Seeling this product to the wrong guy could mean big problems for the seller, whereas when selling shorts there is no wrong guy. Whether or not it is required is irrelavent, except to say that if it weren’t the same losers with low credit scores would generally be the ones without insurance.
If saying this makes me a racist in your eyes, then so be it, but there ain’t a racist bone in my beautiful body.
It is just another excuse by the insurance industry to screw the consumer. An actuary would know somone who drives 12,000 miles is less likely to have an accident then a person who drives 50,000 miles per year. And that has nothing to do with your credit score.
Credit Scoring is another way or red-lining neighborhoods. Numerous studies have shown rates are significantly higher in the minority and poor neighborhoods than the risk-factor for insuring those in minority and poor neighborhoods.
Credit Scoring for insurance is wrong does not equate to a persons driving record.
The fact is that income is not included in the algorithim accept as a percentage of debt. to income factor.
The fact are that wealthy people (over 100k per year) average about 2-5 points lower on credit score than those between 30-50K family income.
The facts are that in a double blind study of over 1 million policies auto and home that credit score was the second greatest predictor of future claims..(only behind previous claims which is the single largest predictor)
The facts are that in that same double blind study race was never determined
The facts are that in the study those with the lowest 20% of scores were over twice as likely to have more than one claim and that the claim would average over 50% more in overall amount.
The facts are that by surcharging for poor scores in addition to surcharging for previous claims the industry saves those without previous claims and better bill paying practices somewhere between 20-50% in average annual premiums.
If you want to save a lot of money on insurance do these three things:
1) Don’t turn in claims for less than $2500 dollars.
2) Raise your deductible to at least $2500 or 2% of the Coverage A amount on your policy.
3) Ask for and take advantage of all available discounts that your company may make available. There are many more than most agents show you.
Final Note:
Without Credit and Claims data your company has to accept and charge for the worst case scenarios…. Their are bad apples that can only be found out by sharing this information. And all insurance customers pay for them to some extent. There are people who make a living by scamming and then sueing insurance companies… And even the employees of these companies pay the price. And this I know first hand.
People with bad credit canlive in the best neighborhoods, and people who pay their bills can live in a rowhouse in the ‘hood. What are you saying, that no one in the ‘hood pays his bills? Now THAT’s racist.
Every study done by anyone without an axe to grind shows significant correlation between credit scoring and claims filing. I would just like them to prove their allegations with numbers rather than their “feelings” about this method. Let’s also make it illegal to charge higher rates for credit cards when the score is too high. This discriminates against low income people. These credit scoring procedures have been filed and accepted by the various state insurance departments because they are statistically provable. In the end, how are we supposed to do business? Are we to clear all of our procedures with the great Robert Hunter?
They’re all missing the point. Today, approximately 45% of Americans fall into the scoring band range of 550 to 639 which is sub-prime. In fact, there are some executives who believe because of economic anomolies that this scording band range is their “sweet spot” so say the CEO of AmeriCredit. There is no corrulation between FICO scoring bands and claims, as FICO scoring bands can change in a heart beat by a borrower simply missing a payment while on vacation; a divorce and any number of other potential situations.
This is simply a scam by the industry to find ways to prop up their underwriting or lack thereof, by use of a basis which has none.
Credit histories and scores have been used by industries other than insurance and it’s been acceptable. The scores don’t discriminate – as a matter of fact, most companies have procedures in place to take into account sudden life-changing events like illness or divorce. The basic premise behind the validity of using the scores is a person’s behavioral actions – in other words, if they’re sloppy and careless with their finances, overspend and don’t pay their bills, the studies have shown that they are more likely to file claims, inflate expenses and basically defraud the insurance company. The scores are accurate predictors of their behavior – most folks that get into a minor fender-bender or have a small HO claim that falls below their deductible will pay to have the repairs done. Those that don’t manage their personal life well will not, and then the NEXT TIME they have a claim, it’s for a much BIGGER amount because they didn’t do any preventive work. If you want to look at an industry that didn’t examine credit scores all that well recently, turn your eye towards the mortgage industry. They lost their underwriting discipline and now they’re getting spanked.
Since the industry does not collect data on race and they are using a subjective method that applies exactly the same for all insureds, I don’t see how the term “discriminatory” could apply. If there is a disparate impact, that is a different matter. If so, going after insurance companies for using credit doesn’t fix the root cause.
Polstein, with what authority do you claim that there is no correlation? Please present your actuarial studies with credible insurance data.
PP doesn’t need facts, he has “feelings.”
When are people just going to accept the truth that race and genetics make a difference. People are so blind to things they don’t want to believe.
????????
What the $%^&* does this have to do with anything in this line?
Hey- this country was founded on feelings!!! It was feelings, and not hard work, persistence, and perseverance that make this a great place to live. It was everyone feeling that it could be a great place to live, then a genie came out of a bottle and made it so.
Without profits, the nation doesn’t profit. Nation doesn’t profit = nobody profits. I challange anyone to claim that our current standard of living is based off of anything other than people’s desire to make money.
If it works, don’t fix it.
Uh, hmm, let’s see. The word “race” or “racial” appears 6 times in the article. In addition, here is a quote from the article: “The Missouri study concluded that a consumer’s race was the single most predictive factor determining a consumer’s insurance score”
If you think it has nothing to do with the article, then I will not be able to have a logical intelligent conversation with you.
as a member of one of those minorities, it really pisses me off that you fuzzy headed liberals think that I am SUPPOSED to have a low score because of my minority satus. I am capable of handling my finances and just so happen to have a GOOD score.
Your post doesn’t refer to anything. It makes no sense. Race and genentics have what to do with what? Try reading your own post. Then we might have an intelligent conversation. But from your post I couldn’t actually assume that’s possible.
The insurance credit scoring model is different from a standard FICO score. A person’s credit score in regards to a credit card or mortgage will be different from his insurance credit score, which is used not to deny insurance but in conjunction with other underwriting tools, to derive the correct rate for that risk.
“This is simply a scam by the industry to find ways to prop up their underwriting or lack thereof, by use of a basis which has none.”
Just because you disagree with the actuarial soundness of this theory, does not make it a scam. Present your case with backup instead of ranting against the insurance industry which you are apparently a part of as you are posting on the Insurance Journal.
does anybody have an answer as to why the minority races have lower scores?
Fill in the blank. These things make a difference for a whole bunch of things (my grandparents were smart, my parents are smart, I’m smart… not a coincidence). A topic of this article (I’m presuming, since it’s written in the title) is Credit Scoring. Thus, using deductive logic, I could arrive at the solid conclusion that my post must be about credit scoring. Hmm, that was hard.
Sam,
More power to you and maybe this might hit home to the others.
In comparing scores in lower, middle and higher income neighborhoods (forget race), we found that the scores in what we perceive as higher income areas are significantly lower than other areas. Why? Probably because a lot of the people living in the higher income areas are wanna be’s who are mortgagged to the max.
The only blank to be filled in with your posting is the one between your ears. You want to insult me when I simply asked for an explanation of what you meant. That’s your problem. My problem is that I took the time to try to figure out what your posting meant. Won’t happen again.
Race has nothing to do with your score, nor does income. In a very simple explaination, a score is simply a measure of how well an individual lives within their means and manage their credit.
as a u/w in the 60’s, we were able to discriminate against anyone for whatever reason. the insurance company you worked for set the rules-no liquor related industries, no gays or off the wall life styles, the list was endless. public pressure and new laws stopped that but the insurance industry has looked for ways to discriminate since. despite the rose colored morally superior people who swear they are not prejudiced, there is still prejudice everywhere. it is a fact that poor, minority, and blue collar workers have low credit scores for a number of reasons-seasonal work, recessions, laid off, etc. these people must eat and they feed their family at the expense of their credit. credit scoring gives the insurance industry the ability to discriminate against the same people they discriminated against in the 60’s. i was there-i saw it- i am still here and i see it happening again. different times-same discrimination.
Bottom line, this whole issue (scoring) can be drilled down to simple economics… apparently using some sort of scoring model must be a useful underwriting tool, otherwise it would be discarded. Why would the industry undertake the enormous expense (let alone the consumer backlash) if scoring did not make economical sense?
It was an interesting “race” for many carriers to get on-line with their own system when scoring became more commonplace. Anyone remember the mad dash some of the Mutuals made… just so they would not be inundated with low scoring risks? Now, all my (NY) carriers use some sort of scoring…
What a pile of %^&*! Where do you get such bull? Garbage letters from so called insurance professionals make me so angry. Are there predudiced people in insurance, of course. Just like in society in general. As far as I can tell they don’t run insurance companies. Keep living in the old days old timer.
Have to disagree DWT, it has strong correlations to race/ethnic background. Earning capacity and the discipline to live within your means has credible links to some ethnic groups. Nonetheless, that doesn’t make it discriminatory. Why is it that the race card is only played when one particular ethnic group doesn’t like something? I keep waiting for an American-American to holler discrimination. Hasn’t happened thus far but the country is only a couple hundred years old.
Poor people don’t get credit cards.When they do the Institutions charge them 3-4 times the interest rate as someone who has money.
Again Corporations favorable to the wealthy. They get free points,flights,gifts etc. while the poor guy tries to establish their credit to try and have a piece of the AMERICAN DREAM!
Greed I say!
The rich keep the rich rich!
Maybe You should re-read the article.
Maybe your on of the one’s that’s been handed money from generation to generation. Race is mentioned in the article. Read more than the first and last paragraph!
The article specifically is on CBIS (look it up moron), not credit nor FICO score. Edu-ma-cate yourself before spouting off in defense of the “defens-less” as there is a distinct difference. I think there is a distinct dis-service for the crusaders looking for the next big witch hunt.
this discussion has come up many times in the last few months. and it seems to be a all or nothing argument.
I think people are under the assumption that if they have bad credit then instantly their rates will increase…but that isn’t necessarily so, is it? if you are indeed looking at other data (claims history, insurance history, DUI’s, speeding tickets, being dropped from a previous carrier, etc…) then having a low credit score would of course be one more reason (or mathematical reason) to increase someone’s rates. BUT, if somone has great driving record, good insurance history, premiums paid on time, etc…and bad credit, then that doesn’t necessarily mean it would result in an outrageous premium hike, but they may see an increase. correct? credit scoring is just another tool used in the equation, right?
(i’m genuinely asking.)
Word, yo.
It honestly depends upon your carrier’s level of pricing sophistication. For the most part, credit information (in any form like a score) will not be the only factor in determining your premiums. It will more than likely be combined with relevant customer experieince data with the carrier (or previous claims, payments, etc.)
Yes, you are correct, scoring is just a part of the underwriting/rating process. One particular company that I work closely with admitted (to an agent board) that scoring only accounted for 18% of the entire rating matrix. They may have changed since but with the ever-looming Congressional backlash, I doubt they increased the percentage.
I continue to be amazed by the number of negative knee-jerk reactions to credit scoring without any substantive evidentiary support. Credit scores contain no information about race or income levels. It is simply the result of broad-based comparison of claim experience to credit scores that revealed a STATISTICAL CORRELATION between lower scores and higher claims experience. A statistical correlation is simply a mathmatical outcome, it does not identify a cause and effect (Studies show that when it is raining 98% of the people with umbrellas will open them. If 98% of the people open their umbrellas, it will not rain–nevertheless, statistical probability is that when 98% of umbrellas are open, it is safe to bet it’s raining!) Why do companies like credit scoring? A couple of reasons. First, it is the most accurate statistical correlation available, i.e. better than age, driving record, marital status etc. (this is a relative thing–Let’s say age has an 8% accuracy a s predictor and credit scoring 12%, that is a 50% improvement, good by any standard.) Second, it is fast and convenient. With a computer and your SSN, a company can generate a quote on line in minutes, if not seconds. This greatly facilitates the sales process particularly on the internetsales and agent sales. This convenience should result in more competitive rates by lowering sales costs and increasing predictability.
Don’t like credit scoring? Don’t just play the race card. If it is half as bad as suggested, there should be plenty of empirical evidence with with which to back up your claim of discrimination. Go find it and you will get a lot more respect for your position than from whining
I continue to be amazed by the number of negative knee-jerk reactions to credit scoring without any substantive evidentiary support. Credit scores contain no information about race or income levels. It is simply the result of broad-based comparison of claim experience to credit scores that revealed a STATISTICAL CORRELATION between lower scores and higher claims experience. A statistical correlation is simply a mathmatical outcome, it does not identify a cause and effect (Studies show that when it is raining 98% of the people with umbrellas will open them. If 98% of the people open their umbrellas, it will not rain–nevertheless, statistical probability is that when 98% of umbrellas are open, it is safe to bet it’s raining!) Why do companies like credit scoring? A couple of reasons. First, it is the most accurate statistical correlation available, i.e. better than age, driving record, marital status etc. (this is a relative thing–Let’s say age has an 8% accuracy a s predictor and credit scoring 12%, that is a 50% improvement, good by any standard.) Second, it is fast and convenient. With a computer and your SSN, a company can generate a quote on line in minutes, if not seconds. This greatly facilitates the sales process particularly on the internetsales and agent sales. This convenience should result in more competitive rates by lowering sales costs and increasing predictability.
Don’t like credit scoring? Don’t just play the race card. If it is half as bad as suggested, there should be plenty of empirical evidence with with which to back up your claim of discrimination. Go find it and you will get a lot more respect for your position than from whining
Well then why is everyone complaining???
let’s see, i’m a white, female (single), low credit score, but great insurance history. if my current carrier decides to hike my rates that much, i would go shopping…just like i did the first time when i realized i was overpaying at state farm.
i originally had the knee jerk reaction, and still don’t completely agree with using credit scoring for AUTO INSURANCE, but at least I can understand that my CREDIT SCORE DOES NOT MAKE UP 100% of my premium.
but, in my opinion, (and this is purely for conversations sake), isn’t that like being charged twice for the same crime. i messed up with credit in college, i have definitely paid the price, now i could potentially be “charged” AGAIN for it by having my insurance go up.
either way…i won’t complain too much since it’s not 100% of the premium.
progressive insurance gave a presentation when credit scoring first came out and they showed graphs detailing the correlation between credit scores and accident ratios. it was impressive and it showed that credit scores ARE AN ACCURATE predictor of loss. there is no dispute on this fact. what they did not show was that the statistical graph was identical to the graph showing the correlation between the number of prior tickets and the probability of future accidents. so why duplicate the underwriting? in california ins. companies cannot use credit scoring for auto rating due to proposition 103 restrictions. what they can do, however, is restrict the monthly pay schedule, thus eliminating their undesirables.
All you agents/insurance companies can use any babble to say that credit scoring is a good tool in factoring insurance premiums but everyone knows behind the insurance companies smoke screens it is just a way to get higher premiums from those who can least afford it. Don’t compare a credit card company using scoring to choose a percentage rate, a credit card is something you CHOOSE and insurance is something you are REQUIRED to have. It is just another way for the insurance industry to beat down the poor, and sorry but race IS a factor and it is sickening that the insurance industry is allowed to get away with this!
No matter what your opinions are on this subject, I have a feeling if Credit does become a factor for premiums in all states, I bet you see a lot more uninsured drivers out there.
Credit scores don’t measure your ability to live within your means. Credit scores reflect how well you manage CREDIT–not income–and work on certain assumptions–including that all the info in them is correct. I know many people out there who have credit scores that look great–because they borrow from one source to pay off another, use balance transfers to move debts to cards w/introductory rates, etc–and while their scores may be temporarily high, in the end it always collapses on them. And when they start getting hounded by bill collectors, they are more likely to not pay things like insurance, because insurance companies just cancel them–we don’t take them to court. I’ve been driving over 25 years, I’ve never had a ticket, the only accident I ever had–20 yrs ago–was 100% the other person’s fault, and I’ve had one claim for a windshield in all that time. Do you think I’m a bad risk? But if my credit score is on the lower side, it will affect my rate. Also, for most people, if they are looking for insurance, they need it then–if they find out there are mistakes on their credit scores, they don’t have time to work on correcting them before buying. And as far as saying companies have built in ways to account for temp life changes–having worked in UW in the past, I know the way they deal with it is to put you in a higher risk anyway, because they say these life changes may negatively affect the way you drive. Your driving record should be the first and most important item in determining your rate. If they need the info, companies can also tell if a person has a lot of insurance lapses by running their DMV reports, so that could be part of the rating. If someone is new to driving and doesn’t have much of a driving record, then possibly credit scores can be part of the mix, as it may be a more relevant indicator for those drivers than others. But for people with established driving records, credit shouldn’t be an issue.
Short lesson on Credit Scoring…
You have well established credit, and
you have never been late with a payment.
This guarantees that you have a high score – right?
Wrong.
Everyone has seen the incentives to open a new line of credit. Get 10% off your purchases with our card or get 10 cents off per gallon with our card. How many times have any of you taken advantage of these? Did you know that every time you do you actually hurt your credit score?
Then say you close those accounts. CLosing these accounts does not have an immediate impact on your score. It takes up to seven years for those accounts to fall off your credit report.
And there may be another drawback to closing accounts. Let’s say that you have 10 credit cards with a total credit line of $100,000. You only use 3 of the cards and have $30,000 on those three cards. Your total debt percentage is 30% to your limit. Now you close 5 of the unused cards. The percentage goes from 30% to 60%. Another bad indicator.
Now don’t get me wrong, I am actually in favor of credit scoring. What I think needs to be done however is that a better job needs to be done educating the public on what impacts their credit score and the impact that a bad credit score can have on them (and I am not talking about just insurance).
You are correct that we do not CHOOSE to buy insurance. But how could someone’s choice to get a credit card affect anyone but themselves? An over the limit fee does not affect someone else. But an auto accident affects those in ALL vehicles involved in the transaction. If credit card companies can use whatever scoring they want, why not allow insurance companies the same? No one complains when credit card companies raise their rates, why complain about insurance? When was the last time a credit card company went belly up due to its loss ratio? Let’s level the playing field and allow insurance companies to charge a small transaction fee each time you make a change in coverage, add or delete a vehicle or process your renewal and let’s just make those charges transparent for all to see. then you can complain about your rates, the underwriting criteria etc. and maybe you’ll have a valid case…but the insurance company bottom line can be protected and you won’t have to worry whether your rate was too high because of your poor credit or the color of your skin or where you live…charge everyone the same rate for coverage but allow several add ons; if banks and credit card companies no longer rely on making loans to make money, why should insurance companies only make money on premiums?
Here’s something I can’t figure out. All the people that claim this type of stuff is a scam and “is just another way for the insurance industry to beat down the poor” and take advantage of the “poor” or a ceratin race, etc… this does not make sense to me. Logically, if you wanted to take advantage of someone or scam someone, wouldn’t you go after the people that have the most money (i.e. the wealthy)?
Come on, use a little logic here. I highly doubt this is a scam because the industry would be scamming the wrong people. Do you really think executives sit around in a room and try to come up with ways of screwing the poor? Give me a break.
Why can’t you admit that a it is possible that wealthy people may be smarter and better at managing risks, better drivers, better handlers of money, etc? No, I’m not saying that this is true 100% of the time. But don’t you think it is a possibility?
Aren’t you satisfied enough by the fact that the wealthy pay nearly 100% of the federal tax? Are they receiving 100% of the benefit of the federal government? Of course not. So now you want the wealthy to pay for your insurance too? What’s next, national health care and a federal welfare program for seniors? Oh wait, we already have the latter.
So… insurance companies only exist to beat down the poor and promote racism? If insurance were a commidity like clothing or strawberries it would make sense to put it on sale occasionally, to try to get as many people to buy it as possible.
But it ain’t like selling widgets. Seeling this product to the wrong guy could mean big problems for the seller, whereas when selling shorts there is no wrong guy. Whether or not it is required is irrelavent, except to say that if it weren’t the same losers with low credit scores would generally be the ones without insurance.
If saying this makes me a racist in your eyes, then so be it, but there ain’t a racist bone in my beautiful body.
A lot of the post here,state the “bad” apple theory to support their flawed theory of using credit scoring for insurance claims.
http://newstandardnews.net/content/index.cfm/items/2696
It is just another excuse by the insurance industry to screw the consumer. An actuary would know somone who drives 12,000 miles is less likely to have an accident then a person who drives 50,000 miles per year. And that has nothing to do with your credit score.
Credit Scoring is another way or red-lining neighborhoods. Numerous studies have shown rates are significantly higher in the minority and poor neighborhoods than the risk-factor for insuring those in minority and poor neighborhoods.
Credit Scoring for insurance is wrong does not equate to a persons driving record.
The facts from the inside.
The fact is that income is not included in the algorithim accept as a percentage of debt. to income factor.
The fact are that wealthy people (over 100k per year) average about 2-5 points lower on credit score than those between 30-50K family income.
The facts are that in a double blind study of over 1 million policies auto and home that credit score was the second greatest predictor of future claims..(only behind previous claims which is the single largest predictor)
The facts are that in that same double blind study race was never determined
The facts are that in the study those with the lowest 20% of scores were over twice as likely to have more than one claim and that the claim would average over 50% more in overall amount.
The facts are that by surcharging for poor scores in addition to surcharging for previous claims the industry saves those without previous claims and better bill paying practices somewhere between 20-50% in average annual premiums.
If you want to save a lot of money on insurance do these three things:
1) Don’t turn in claims for less than $2500 dollars.
2) Raise your deductible to at least $2500 or 2% of the Coverage A amount on your policy.
3) Ask for and take advantage of all available discounts that your company may make available. There are many more than most agents show you.
Final Note:
Without Credit and Claims data your company has to accept and charge for the worst case scenarios…. Their are bad apples that can only be found out by sharing this information. And all insurance customers pay for them to some extent. There are people who make a living by scamming and then sueing insurance companies… And even the employees of these companies pay the price. And this I know first hand.
People with bad credit canlive in the best neighborhoods, and people who pay their bills can live in a rowhouse in the ‘hood. What are you saying, that no one in the ‘hood pays his bills? Now THAT’s racist.