The Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance - Part I
National News • September 24, 2008
Following is the testimony presented by Lawrence S. Powell, PhD before the United States House of Representatives Financial Services Committee Oversight & Investigations Subcommittee on May 21, ...
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Subject: Re: The Impact of Credit-Based Insurance Scoring on the Avai
Posted On: September 25, 2008, 6:40 pm CDT
Posted By: Bernard P.
Comment:
I think professor Powell's analysis is correct, and his analysis rigorous and complete. While it is easy to be critical of credit scoring, we never see any empirical evidence supporting the consumer benefits of eliminating credit scoring. I suspect there is none of either -- that is, no benefits or no evidence. And, that is why we have credit scoring.
If credit scoring were not the most efficient means to align rates and risk, other insurance carriers could use different approaches, provide a more precise alignment of risk to rates, and win the entire market, thereby putting these evil credit scorers out of business. But, it has not happend. It has not happended because credit scoring works, is efficient and economic welfare maximizing. Those using credit scoring have the competitive edge by virtue that other approaches do not work as well.
Those calling for the end of credit scoring fail to see that the inefficiencies created in the market (under pricing risky driver premiums), which means that someone else (good drivers) pay for it. This point was made by consumer group see: http://www.theamericanconsumer.org/category/issues/finance_insurance/
The result of under pricing risky driver premiums, besiding raising everyone else's premiums, encourages risky behaviors. It makes it easier for bad drivers to rack up the miles -- leading to more accidents, claims, losses and deaths. The end result of this cross-subsidy makes the average American worse off.
Subject: Re: The Impact of Credit-Based Insurance Scoring on the Avai
If credit scoring were not the most efficient means to align rates and risk, other insurance carriers could use different approaches, provide a more precise alignment of risk to rates, and win the entire market, thereby putting these evil credit scorers out of business. But, it has not happend. It has not happended because credit scoring works, is efficient and economic welfare maximizing. Those using credit scoring have the competitive edge by virtue that other approaches do not work as well.
Those calling for the end of credit scoring fail to see that the inefficiencies created in the market (under pricing risky driver premiums), which means that someone else (good drivers) pay for it. This point was made by consumer group see: http://www.theamericanconsumer.org/category/issues/finance_insurance/
The result of under pricing risky driver premiums, besiding raising everyone else's premiums, encourages risky behaviors. It makes it easier for bad drivers to rack up the miles -- leading to more accidents, claims, losses and deaths. The end result of this cross-subsidy makes the average American worse off.