I’ve been telling my friends and family that credit scores are going to be made against the law whether it be for loans, credit cards, insurance, etc. I truly believe that Congress will do this within the next year. We have alot of Dems up for reelection in 2010. They want to get back in. Their constituents are going to cry to them for help because they have to pay higher insurance rates or interest.
I’ve viewed and reviewed the numbers and I absolutely believe that there is a correlation that can be proved, between credit score and future losses. But, I also advocate that for the betterment of society, there are instances where scoring should not be allowed as a rating or tiering factor.
The majority of companies do not view credit as a way to discriminate against minorities or any other protected groups. Companies do not collect ethnic data on their insureds and poor credit scores appear in all income levels. However, poor credit scores fall unequally on some minorities and income groups as their chances of being able to pull themselves up into better financial positions are hindered through prejudice, culture and equal access to or their ability to take advantage of educational opportunities.
Additionally, in our present economic conditions, budgets of those who have lived responsibly are being stretched when wages are frozen, hours are cut back or jobs are lost. Many are struggling to pay for necessities let alone emergency situations. These situations generally cause people to rely more on credit. Late fees, over the limit fees, increased interest rates, line of credit reductions (increases the debt to credit ratios) etc. generated by credit card debt virtually guarantee these individuals and their family’s imprisonment by poor credit.
Credit scoring also works against many small business owners who are required to pledge personal assets against business loans. Small business owners are especially susceptible to cash flow problems during economic, compounded by the normal seasonal, downturns.
Companies should voluntarily temper their use of credit scoring during these tough economic times, and it some instances beyond, before State Governments take this “tool” away completely.
I am not for sure, but I thought the industry stopped using credit scores years ago – today we use insurance scores. This does look at similar traits that credit does look at, but the values are weighed differently based on the scoring model chosen by the company. Credit scores heavily weigh debt to income ratios, insurance scores do not look at this ratio at all.
The fact of the matter is that insurance scores are used as a tool to predict future losses. If all of the sudden scores are 50 points lower, companies will experience better results for that new score level – companies will adjust rate to attract that new target market.
JC
Take two identical risks in every respect and change only the credit score (450 Vs 850) the significant difference in premium will tell you that a “financial score” is the name “credit score” masquerades behind to make it more palitable. If you get inside the little “black boxes” (proprietary information) insurance companies hide behind you’ll find the same IBS, its still a credit score.
I can tell you with absolute certainty that Geico 100% uses credit scores in determining your auto insurance rates. I’ve never had a ticket or accident in my life and am 39yrs old. When I called Geico for a recent quote, i was asked all sorts of questions and was told that my credit report would be run in order to determine my rate. I have near perfect credit so I don’t know exactly how it affected my rates b/c they’re so low to begin with.
Oh anon, you must be correct (or brain-washed by your employer) with an arrogant statement like that. I, like many insurance veterans in the business for 30+ years continue to believe that there is too much reliance on credit scoring today. Coming from three generations of insurance professionals, many of them quite successful, by the way, there is not one single holy grail in determining risk or future loss. I wish it were just that easy.
I’ve been in the business 32 years too and I can tell you Bob is simply incorrect. The numbers are there for everyone too see. Insurance scoring has a number of factors that take into account things beyond the credit score. That’s a fact. I’m sorry for those people who feel it is unfairly discriminitory, I don’t believe it is.
CSP & JOHN Q..I’m with you !
Hey: Mr Anon..my number is 47 years in this profession, and all I want to do is insure safe drivers and people who maintain their home, so get with it !
The use of credit scores..-now disguised as “insurance scores” is a charade.
Especially now, when many people have been wounded by the crookedness of Wall Street, and had their score downgraded.
Another ruse is the “algoritim”..meaning the power of the punch the carrier places on the score.
If it’s holier than thou, then WHY is one carriers’ rate drastically lower than anothers; when the applicant has the SAME insurance score ?
The whole notion of insurance scoring is bogus & being deliberately propagated by the industry AND the Commisioners who nod along to it !
Give me a break !
John Q Agent, as an experienced person in insurance I can say, what are you talking about? Insurance scoring is one factor in many used to price insurance. What company relies on it exclusively? It’s just one statistically reliable number among many used. Since the MVR’s are notoriously deficient in most states should we exclude that as a factor? Insurance is a business of numbers, not feelings. There is sufficient proof that they are reliable, where is the statistical proof that they aren’t? Until the anti insurance scoring crowd has an answer to that I think the retoric needs to be toned down.
Give me a break Tobias. All my company wants to do is write the business profitably. This is simply a method of doing it. I may not have 47 years, only 32, but I do know that this is a factual and statistically valid method of pricing insurance. Not underwriting, pricing. Show me the numbers that say that it’s not. Every study says it is so if a company doesn’t use it they are selected against. Not too smart.
What if the State ran a study and found that a low credit score was an indicator that you would be more prone to committing a felony – should they tax this group more to pay for prisons? Credit scores should be between you and the financial company from whom you are requesting a loan. As a society, credit scores or financial scores that use credit as a component whether minor or major, should not be allowed in insurance.
I’d be willing to bet that there is a true statistical correlation between IQ scores and driving records. If that is the case, require IQ tests of all drivers then charge rates accordingly.
Problem is there has been no study to test this theory cause the cries of discrimination you would get would be deafening. Why is it not the same with insurance scores?
There is no causal nexus using either insurance scores or IQ scores, only an interesting statistical parallel.
If someone is a poor driver, history will tell us that with the MVR. If history tells us otherwise, why impose an artificial surcharge?
The next generation of PL auto rating technology will require the vehicle having a monitoring device permanently installed in the insured vehicle. This will develop a driver score, basically a report card, based on how the vehicle is driven, breaking habits, turn speeds, speed driven vs speed limit, weather driver have seat belts on or not and much more data. In addition, in the event of an accident there will be a complete recording of what the driver was doing seconds prior to a loss. This will eliminate the need for an insurance score and even an MVR.
You think explaining the correlation between credit and insurance rates is tough….just wait until this comes along and the resistance from the public will be 100 times worse.
In a world of technology our product has evolved for the better – at the end of the day, this is just a big numbers game, trying to charge an accurate premium for the risk.
Yes, 32 years in the business, 23 years on the company side, many years in management. I also took statistics in gradute school. Give me the numbers and I’ll get you the statistics you want to show anything you want..It’s all in the numbers…..Just like charge by the mile. The industry fougth that scam tooth and nail for 20 years until the government got involved and discovered they could track you through the navigation unit (GPS) with the 4 gig hard drive, and the insurance companies discovered they could find out how fast you were driving, the speed limit, for how long, and how hard you braked. If you think this is a myth…better wake up and smell the roses…the techniology is already here and being used by some trucking companies…only a matter of time, it’s coming to you…you’re losing the fight for freedom. Better learn how to fight th is monster……
Bob, you say “Credit scores should be between you and the financial company from whom you are requesting a loan”
Don’t insurance carriers regularly make “loans”? When a carrier agrees to insure a risk and does not have payment in full in advance of the effective date of the policy, are they not making a loan?
When you go to Big Box Electronic Store and they have 12 month financing, they pull your credit to make sure you’ll pay them back.
How is a carrier offering a 12 pay plan any different? Don’t premium finance companies underwrite applicants’ financials? If a policy isn’t being premium financed why shouldn’t the carrier look at financials?
Here in Texas, you can be driving in two lanes at 100 miles an hour, slam into someone, and if there are no injuries it’s not likely you’ll see any citations, and probably not even a police report.
Alternatively, my sister is a TERRIBLE driver. She has gotten a dozen speeding tickets in a dozen cities in Texas in the past three years. How many pull on her MVR? ZERO.
So, I do not consider MVR to be the “whole story” — and I think most here would agree.
What about the guy with the DWI with a 0.25 BAC that has friends in the right places and gets it downgraded to an “obstructing a roadway” violation?
What about Colorado where probably 3/4 of the defective vehicle citations are all downgraded speeding tickets?
Also your IQ comparison doesn’t hold. IQ tests are completely unreliable. You could get ten wildly different IQ scores after taking ten different tests. Credit is more standardized, measurable, and accurate.
And what about marriage? Don’t you get a discount if you’re married as opposed to single? How is this any different from credit scoring?
Don’t men and women pay different premiums? You are implying that credit scoring is indirectly prejudiced since “certain protected groups” are more likely to have lower credit. Rating by gender is not indirectly prejudiced, it is overtly prejudiced. Gender is a “certain protected group,” yet isn’t gender used as a rating criteria?
As I’ve said before…
Lets see, my credit score just took a dive because my credit card company canceled my card for paying it off in full each month and not using it often enough, I got a new card through a new bank and at less interest but again my score went down “new card no history. I was able to buy a new home and a new car with my credit score but my insurance went through the roof because my score changed. Boys and girls Insurance credit scoring is not fair, it’s not accurate and once a bad score is applied by a company it will rarely be changed for the better. Fair Isaacs sold us all a bill of goods to make money by selling their score to insurance Co.’s. Its double jeopardy to charge because someone may have an accident and then to charge again if they do, we should do away with the maybe and only up charge if and when there is an accident or claim.
As CSP said “Give me the numbers and I’ll get you the statistics you want to show anything you want..It’s all in the numbers…..”
Not that it matters butI am just a pup with only 27 years under my belt. We should all be willing to learn as we go along.
I explain it to people this way: The banks and the insurance companies are all playing cards. We use the same 52-card deck, the Consumer Financial Report. The Bank is playing Bridge and the Insurance Company is playing Poker. Same deck, Aces are good in both but very different rules and outcomes. We aren’t looking for the same things.
The insurance companies don’t all play the same version of Poker. I know that my company has a proprietary scoring model as I am sure do others.
In Bridge you play with a partner. Fittingly, in Poker it is every man for himself.
Then CSP, you have been in the wrong business for a long time. Insurance is about people of course, but the basis of rates are numbers. If you don’t trust any numbers then none of what we base our rates on makes sense. Stop the paranoia. Every study done by any group shows that this is a valid method. Show me one that’s not done by a so called consumer group that shows this method doesn’t reflect risk. Insurance is based on the law of large numbers, is that made up too?
Credit scoring is a reasonable idea but can too easily be adversely affected through no fault of the consumer. Financial institutions have carte blanche to amend terms, conditions, rates, and limits on credit card accounts. When they make changes, typically the impact is adverse to the consumer. Consider the recent and significant entry into the insurance business by the banking sector. Does anyone else wonder if there is a connection between the tool used by banks to increase interest rates and the sudden desire by insurance companies to use those same scores to increase insurance rates? Ever try to fight your credit report? Who is your advocate if you do?
Common sense and reasoned thought dictate that there is no constant common thread between credit scores and propensity to loss. In certain instances, there may be but it is hardly true across the board. Proponents cite the statistical data as proof of scores’ validity. I think we all know that numbers are easily manipulated. What cannot be manipulated is the simple, rationale thought that having a medical bill in collections make a driver less safe or a homeowner more apt to burn his home. If that were the case, we’d all have gas cans and matches.
Yes, the technology is here to track all of that information. I’d love to have it available for my own policy. I don’t exceed the speed limit, rarely drive in zip codes that are considered high risk, don’t drive far to work and most of all, have nothing to hide. I also understand that it’s not for everyone and that’s okay as well. Should be optional I guess.
One last item on the credit issue. Why is it (at least in Florida) that carriers that do not use credit always seem to have higher rates? At the very least, they aren’t major players in the auto market. If being a “non-credit scoring” carrier was so beneficial to the those companies AND their insureds, then why aren’t they relevant in the marketplace?
“If being a “non-credit scoring” carrier was so beneficial to the those companies AND their insureds, then why aren’t they relevant in the marketplace?”
When some carriers use credit and some do not, the people with good credit go to the credit-scoring carriers who offer a discount, and the people with poor credit go to the “non-credit” markets. By advertising that they do not look at credit these carriers are adversely selecting against themselves, necessitating higher rates.
Well, I believe you and Matt just stated the case for credit scoring. Companies that haven’t used credit scoring, when they are free to do so, aren’t having the growth results. They’re writing business, and maybe profitablly, but they won’t be major players in the PPA market without it. They just can’t provide enough segmentation to serve the overall marketplace. Of course in states where credit is not allowed, then I guess it’s a different story?
Great analogy Good Hands.
I’ve been telling my friends and family that credit scores are going to be made against the law whether it be for loans, credit cards, insurance, etc. I truly believe that Congress will do this within the next year. We have alot of Dems up for reelection in 2010. They want to get back in. Their constituents are going to cry to them for help because they have to pay higher insurance rates or interest.
I’ve viewed and reviewed the numbers and I absolutely believe that there is a correlation that can be proved, between credit score and future losses. But, I also advocate that for the betterment of society, there are instances where scoring should not be allowed as a rating or tiering factor.
The majority of companies do not view credit as a way to discriminate against minorities or any other protected groups. Companies do not collect ethnic data on their insureds and poor credit scores appear in all income levels. However, poor credit scores fall unequally on some minorities and income groups as their chances of being able to pull themselves up into better financial positions are hindered through prejudice, culture and equal access to or their ability to take advantage of educational opportunities.
Additionally, in our present economic conditions, budgets of those who have lived responsibly are being stretched when wages are frozen, hours are cut back or jobs are lost. Many are struggling to pay for necessities let alone emergency situations. These situations generally cause people to rely more on credit. Late fees, over the limit fees, increased interest rates, line of credit reductions (increases the debt to credit ratios) etc. generated by credit card debt virtually guarantee these individuals and their family’s imprisonment by poor credit.
Credit scoring also works against many small business owners who are required to pledge personal assets against business loans. Small business owners are especially susceptible to cash flow problems during economic, compounded by the normal seasonal, downturns.
Companies should voluntarily temper their use of credit scoring during these tough economic times, and it some instances beyond, before State Governments take this “tool” away completely.
I am not for sure, but I thought the industry stopped using credit scores years ago – today we use insurance scores. This does look at similar traits that credit does look at, but the values are weighed differently based on the scoring model chosen by the company. Credit scores heavily weigh debt to income ratios, insurance scores do not look at this ratio at all.
The fact of the matter is that insurance scores are used as a tool to predict future losses. If all of the sudden scores are 50 points lower, companies will experience better results for that new score level – companies will adjust rate to attract that new target market.
JC
Take two identical risks in every respect and change only the credit score (450 Vs 850) the significant difference in premium will tell you that a “financial score” is the name “credit score” masquerades behind to make it more palitable. If you get inside the little “black boxes” (proprietary information) insurance companies hide behind you’ll find the same IBS, its still a credit score.
I’ve been in the business for 32 years, credit scoring is an unadultered scam by the insurance companies to gouge the customer.
IT SHOULD BE OUTLAWED BY ALL STATES!!!
CSP, 32 years or not. It is apparent that you know nothing of insurance.
I can tell you with absolute certainty that Geico 100% uses credit scores in determining your auto insurance rates. I’ve never had a ticket or accident in my life and am 39yrs old. When I called Geico for a recent quote, i was asked all sorts of questions and was told that my credit report would be run in order to determine my rate. I have near perfect credit so I don’t know exactly how it affected my rates b/c they’re so low to begin with.
Oh anon, you must be correct (or brain-washed by your employer) with an arrogant statement like that. I, like many insurance veterans in the business for 30+ years continue to believe that there is too much reliance on credit scoring today. Coming from three generations of insurance professionals, many of them quite successful, by the way, there is not one single holy grail in determining risk or future loss. I wish it were just that easy.
I’ve been in the business 32 years too and I can tell you Bob is simply incorrect. The numbers are there for everyone too see. Insurance scoring has a number of factors that take into account things beyond the credit score. That’s a fact. I’m sorry for those people who feel it is unfairly discriminitory, I don’t believe it is.
CSP & JOHN Q..I’m with you !
Hey: Mr Anon..my number is 47 years in this profession, and all I want to do is insure safe drivers and people who maintain their home, so get with it !
The use of credit scores..-now disguised as “insurance scores” is a charade.
Especially now, when many people have been wounded by the crookedness of Wall Street, and had their score downgraded.
Another ruse is the “algoritim”..meaning the power of the punch the carrier places on the score.
If it’s holier than thou, then WHY is one carriers’ rate drastically lower than anothers; when the applicant has the SAME insurance score ?
The whole notion of insurance scoring is bogus & being deliberately propagated by the industry AND the Commisioners who nod along to it !
Give me a break !
John Q Agent, as an experienced person in insurance I can say, what are you talking about? Insurance scoring is one factor in many used to price insurance. What company relies on it exclusively? It’s just one statistically reliable number among many used. Since the MVR’s are notoriously deficient in most states should we exclude that as a factor? Insurance is a business of numbers, not feelings. There is sufficient proof that they are reliable, where is the statistical proof that they aren’t? Until the anti insurance scoring crowd has an answer to that I think the retoric needs to be toned down.
Give me a break Tobias. All my company wants to do is write the business profitably. This is simply a method of doing it. I may not have 47 years, only 32, but I do know that this is a factual and statistically valid method of pricing insurance. Not underwriting, pricing. Show me the numbers that say that it’s not. Every study says it is so if a company doesn’t use it they are selected against. Not too smart.
What if the State ran a study and found that a low credit score was an indicator that you would be more prone to committing a felony – should they tax this group more to pay for prisons? Credit scores should be between you and the financial company from whom you are requesting a loan. As a society, credit scores or financial scores that use credit as a component whether minor or major, should not be allowed in insurance.
I’d be willing to bet that there is a true statistical correlation between IQ scores and driving records. If that is the case, require IQ tests of all drivers then charge rates accordingly.
Problem is there has been no study to test this theory cause the cries of discrimination you would get would be deafening. Why is it not the same with insurance scores?
There is no causal nexus using either insurance scores or IQ scores, only an interesting statistical parallel.
If someone is a poor driver, history will tell us that with the MVR. If history tells us otherwise, why impose an artificial surcharge?
Bob, your wild comparison isn’t even worth commenting on, so I won’t.
The next generation of PL auto rating technology will require the vehicle having a monitoring device permanently installed in the insured vehicle. This will develop a driver score, basically a report card, based on how the vehicle is driven, breaking habits, turn speeds, speed driven vs speed limit, weather driver have seat belts on or not and much more data. In addition, in the event of an accident there will be a complete recording of what the driver was doing seconds prior to a loss. This will eliminate the need for an insurance score and even an MVR.
You think explaining the correlation between credit and insurance rates is tough….just wait until this comes along and the resistance from the public will be 100 times worse.
In a world of technology our product has evolved for the better – at the end of the day, this is just a big numbers game, trying to charge an accurate premium for the risk.
Yes, 32 years in the business, 23 years on the company side, many years in management. I also took statistics in gradute school. Give me the numbers and I’ll get you the statistics you want to show anything you want..It’s all in the numbers…..Just like charge by the mile. The industry fougth that scam tooth and nail for 20 years until the government got involved and discovered they could track you through the navigation unit (GPS) with the 4 gig hard drive, and the insurance companies discovered they could find out how fast you were driving, the speed limit, for how long, and how hard you braked. If you think this is a myth…better wake up and smell the roses…the techniology is already here and being used by some trucking companies…only a matter of time, it’s coming to you…you’re losing the fight for freedom. Better learn how to fight th is monster……
Bob, you say “Credit scores should be between you and the financial company from whom you are requesting a loan”
Don’t insurance carriers regularly make “loans”? When a carrier agrees to insure a risk and does not have payment in full in advance of the effective date of the policy, are they not making a loan?
When you go to Big Box Electronic Store and they have 12 month financing, they pull your credit to make sure you’ll pay them back.
How is a carrier offering a 12 pay plan any different? Don’t premium finance companies underwrite applicants’ financials? If a policy isn’t being premium financed why shouldn’t the carrier look at financials?
“If history tells us otherwise”
Here in Texas, you can be driving in two lanes at 100 miles an hour, slam into someone, and if there are no injuries it’s not likely you’ll see any citations, and probably not even a police report.
Alternatively, my sister is a TERRIBLE driver. She has gotten a dozen speeding tickets in a dozen cities in Texas in the past three years. How many pull on her MVR? ZERO.
So, I do not consider MVR to be the “whole story” — and I think most here would agree.
What about the guy with the DWI with a 0.25 BAC that has friends in the right places and gets it downgraded to an “obstructing a roadway” violation?
What about Colorado where probably 3/4 of the defective vehicle citations are all downgraded speeding tickets?
Also your IQ comparison doesn’t hold. IQ tests are completely unreliable. You could get ten wildly different IQ scores after taking ten different tests. Credit is more standardized, measurable, and accurate.
And what about marriage? Don’t you get a discount if you’re married as opposed to single? How is this any different from credit scoring?
Don’t men and women pay different premiums? You are implying that credit scoring is indirectly prejudiced since “certain protected groups” are more likely to have lower credit. Rating by gender is not indirectly prejudiced, it is overtly prejudiced. Gender is a “certain protected group,” yet isn’t gender used as a rating criteria?
As I’ve said before…
Lets see, my credit score just took a dive because my credit card company canceled my card for paying it off in full each month and not using it often enough, I got a new card through a new bank and at less interest but again my score went down “new card no history. I was able to buy a new home and a new car with my credit score but my insurance went through the roof because my score changed. Boys and girls Insurance credit scoring is not fair, it’s not accurate and once a bad score is applied by a company it will rarely be changed for the better. Fair Isaacs sold us all a bill of goods to make money by selling their score to insurance Co.’s. Its double jeopardy to charge because someone may have an accident and then to charge again if they do, we should do away with the maybe and only up charge if and when there is an accident or claim.
As CSP said “Give me the numbers and I’ll get you the statistics you want to show anything you want..It’s all in the numbers…..”
Not that it matters butI am just a pup with only 27 years under my belt. We should all be willing to learn as we go along.
I explain it to people this way: The banks and the insurance companies are all playing cards. We use the same 52-card deck, the Consumer Financial Report. The Bank is playing Bridge and the Insurance Company is playing Poker. Same deck, Aces are good in both but very different rules and outcomes. We aren’t looking for the same things.
The insurance companies don’t all play the same version of Poker. I know that my company has a proprietary scoring model as I am sure do others.
In Bridge you play with a partner. Fittingly, in Poker it is every man for himself.
Then CSP, you have been in the wrong business for a long time. Insurance is about people of course, but the basis of rates are numbers. If you don’t trust any numbers then none of what we base our rates on makes sense. Stop the paranoia. Every study done by any group shows that this is a valid method. Show me one that’s not done by a so called consumer group that shows this method doesn’t reflect risk. Insurance is based on the law of large numbers, is that made up too?
Credit scoring is a reasonable idea but can too easily be adversely affected through no fault of the consumer. Financial institutions have carte blanche to amend terms, conditions, rates, and limits on credit card accounts. When they make changes, typically the impact is adverse to the consumer. Consider the recent and significant entry into the insurance business by the banking sector. Does anyone else wonder if there is a connection between the tool used by banks to increase interest rates and the sudden desire by insurance companies to use those same scores to increase insurance rates? Ever try to fight your credit report? Who is your advocate if you do?
Common sense and reasoned thought dictate that there is no constant common thread between credit scores and propensity to loss. In certain instances, there may be but it is hardly true across the board. Proponents cite the statistical data as proof of scores’ validity. I think we all know that numbers are easily manipulated. What cannot be manipulated is the simple, rationale thought that having a medical bill in collections make a driver less safe or a homeowner more apt to burn his home. If that were the case, we’d all have gas cans and matches.
Yes, the technology is here to track all of that information. I’d love to have it available for my own policy. I don’t exceed the speed limit, rarely drive in zip codes that are considered high risk, don’t drive far to work and most of all, have nothing to hide. I also understand that it’s not for everyone and that’s okay as well. Should be optional I guess.
One last item on the credit issue. Why is it (at least in Florida) that carriers that do not use credit always seem to have higher rates? At the very least, they aren’t major players in the auto market. If being a “non-credit scoring” carrier was so beneficial to the those companies AND their insureds, then why aren’t they relevant in the marketplace?
“If being a “non-credit scoring” carrier was so beneficial to the those companies AND their insureds, then why aren’t they relevant in the marketplace?”
When some carriers use credit and some do not, the people with good credit go to the credit-scoring carriers who offer a discount, and the people with poor credit go to the “non-credit” markets. By advertising that they do not look at credit these carriers are adversely selecting against themselves, necessitating higher rates.
But who really knows? Just a guess
That was our experience Matt. We were being selected against. Our results have improved since adopting insurance scoring.
Well, I believe you and Matt just stated the case for credit scoring. Companies that haven’t used credit scoring, when they are free to do so, aren’t having the growth results. They’re writing business, and maybe profitablly, but they won’t be major players in the PPA market without it. They just can’t provide enough segmentation to serve the overall marketplace. Of course in states where credit is not allowed, then I guess it’s a different story?