I disagree with gouging people because of credit. Some people, especially these days may have been having issues with losing a job, paying medical bills, divorces,etc that have put them in financial trouble beyond their means. Not everyone with poor credit files a claim. Contrary, I find the people with more money and financial stability are the ones who file claims most often and are most costly to the insurer..
If the use of credit scores is a poor predictor of insurer losses, the companies using it will be less competitive and lose market share. There is no incentive to keep using a bad predictor.
Alternately, if you have a better way to measure risk, you might think about turning this skill into profit from your own insurance company start-up.
Ellie just knows that sophisticated insurer models are incorrect and he’s correct just be he says so. What a neanderthal. I’m sure he’s the first to scream at someone as a “flat-earther” if he or she takes exception to some of the global warming studies.
I agree with you partially perplexed. What we are finding as agents these days is that companies are passing on rate increases even if the insured has excellent credit and no losses. They re-tier Homeowners policies upward, surcharge if there is a mortgage on the home and bump the value up significantly to get that extra premium dollar. It is not uncommon to see 20-25% increases and that keeps agents hopping to find affordable coverage the insured will be willing to pay.
I’m sure the insurers have the data to back up the claim. It’s easy to look at credit scores vs. loss history. But if we forced everyone to buy it, I bet the average premium would go down $2500 a year.
Jack, I remember a few years back when carriers were pushing bundling of policies so the customer could save on both policies if they had both with them. Now, you can bundle, have excellent credit score and no losses and still get a double digit increase. The agent is the one who has to look the customer in the eye and try to explain why the premium went up so much and we have egg all over our face. I would like for a company rep to sit down with a customer and try to explain this to them. They can’t.
We all have a role in this industry. If you do not like servicing your purpose, then do something else. My guess is that you are a salesperson, not an insurance professional. Nothing wrong with that. We need salespeople and I am sure you are very good at what you do.
Company people tend to be more technical and understand the compexities of insurance. The job of the agent is to translate into language the customer understands. That is why you are paid a commission.
Ron, allow me to borrow one of your favorite questions. “Why must you insult me with every post”? I have been an Insurance Professional before you were a gleam in your fathers eye. Tell me analytical Ron, why can’t company people explain their rating models to agents so we can understand where they are coming from on pricing? The answer is that they can’t. It is all in the background in the computer system. I have asked more than a few of them and the crickets are still chirping. Their technical answer is no answer at all.
August 15, 2014 at 1:12 pm
Ron says:
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Agent,
If you are an insurance professional, they act like it. My opinion of a professional is someone who has significant depth and breadth of knowledge of their industry. If you do not understand rating models, underwriting, or pricing you are not an insurance professional.
What is your standard line when someone asks why credit is used in underwriting and pricing?
There is a very good reason why credit is used so widely in insurance. IT WORKS.
Rating models are proprietary information. Even if it wasn’t, they are so complex that you would need years of pricing experience to understand them from 10,000 feet, let alone if you drill down to the details. I have spoken to very few agents you have a deep enough understanding of pricing and/or underwriting to explain any model.
Agents are salespeople in most cases, not insurance professionals. If you take that as an insult, so be it, but it was not intended as such.
August 15, 2014 at 4:23 pm
Agent says:
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Hey Analytical Ron, you have no clue what it takes to be a professional insurance agent. You are not involved in Personal Lines, do not know what is in a typical policy and certainly don’t know how to explain coverages to a client. You are just some kind of broker who likes to pontificate and insult me. So be it. I interact with my clients every day while you sit in your cubicle wondering why you didn’t get in the real world business of insurance. Take a hike bub.
August 19, 2014 at 11:56 am
Stan says:
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“Before you were a gleam in your father’s eye”
Wow, you really are old Agent!
August 19, 2014 at 12:48 pm
Ron says:
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Agent,
I agree with you that I, “have no clue what it takes to be a professional insurance agent.” And you have no clue what is takes to be an insurance professional.
August 18, 2014 at 1:19 pm
jack says:
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Agent- I just tell everyone the increase is due to Obamacareless and watch their face. It works on my end!
What a great idea, Jack – let’s force everybody to buy homeowners insurance from a government clearing house. There will be lower premiums and fewer exclusions. But – if you like your present homeowners policy, you can keep it. What could possibly go wrong?
Hi wvagt. Good idea. I am sure the government can do a lot better for us since they have an exemplary track record on so many fronts. Let’s see, we can take the current comprehensive HO form in that state and force it on all states. Never mind the huge deductible and that it won’t cover many things formerly covered. The government knows best and we should follow blindly like lemmings into the pit.
Exactly, and for insurance company’s to be allowed to capitalize on these misfortunes is absurd. Did you know if there is an error or if you are a victim of stolen identity the carrier could careless. Errors are impossible if not fixable period. This was covered a few months ago on 60 Minutes.
Glenn,
You are correct.. Capitalization is what is forced upon most insureds. I see error’s on reports all the time and good luck trying to get it fixed which falls to the insured to take care of.
Glenn, many of our carriers offer ID Theft on their HO policy, usually for about a $15,000 limit for expenses in restoring their good name and credit. I have not seen a claim yet on anyone, but I wonder how those cases turn out and how much help the adjustor is to the customer.
Did anyone see the story on Community Health Systems being hacked by Chinese hackers with access to 4.5 million patient records including Socials and personal info? I wonder what kind of mischief they can cause and how it will affect credit scores in our industry.
Your data analysis is subjective and based on a small sample size, based (from what you’ve posted) entirely on anecdotal evidence. Insurers analyze millions of data points and come to the opposite conclusion based on hard numerical data. Whose results do you think are more credible?
I agree with Ellie. People that have more money and are financially stable seems to file more claims.
If their roof has a little hail damage they get an entire new roof, new gutters, new garage door, etc. I guess they don’t fear cancellation of their policy as much as people that had a loss of a business loss that affected their credit.
I pay probably 60 % more in homeowners premiums and have never once in 17 years filed a claim.
Ann, it is all in the Algorithms. Actuaries hired by the company are always looking for a way to increase premium and when it is too much, they cost the companies business. Then, they revise it and make it look like the company gives credits to reduce premium. Some of your increase is natural valuation increases for Replacement Cost, some of it pure rate taking. If you haven’t checked with a good agent and compared prices, you should do so. I can see about 25% more in 17 years, but 60% is a bit much on a loss free customer with good credit.
Yes, Ellie, not all Pit Bulls attack, injure and maim but I don’t want one or one to even be around my family.
We’re talking strategy to be profitable here. Look up the theory or Insurance.
Actually, the insurance business is very highly regulated and price controlled so companies do NOT “do as they wish”. Companies are required to file requests for rate increases with the insurance department and they must provide their data to back up the need for the increase. Insurance, especially personal lines, is not a free market.
As far as credit score, it is absolutely valid as a measure of the quality of the risk. It has been proven over and over to be highly correlated with loss experience, which is why it has survived court battle after court battle. The fact is, if you are financially irresponsible, you are a higher risk than someone who has their finances in order.
I do not believe you have ever worked in product management or as an actuary. Trust me, you cannot just make the numbers look any way you want when getting rates approved. They will question nearly every data point if something appears out of place.
In addition, it costs insurance companies millions of dollars if the data is not accurate. You will either charge too much and lose market share or charge too little and lose on the loss ratio.
August 15, 2014 at 2:22 pm
Libby says:
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No, I have not been a product manager but I’ve been in this business to know enough about carriers under or over stating reserves in order to either increase or reduce rates. Same thing with surplus. It happens.
As for complex personal lines rating, I know nothing about it. I am not an actuary and I assume you aren’t either.
Many carriers will knowingly offer rate at below loss levels in order to gain market share. This happens often in a soft market when investment income is high. Many of those carriers are not around anymore or are a shell of themselves (Fireman’s Fund, Crum & Forster.)
I respect you have had personal experience on both sides of the fence, but I’m not some simpleton like Agent. I understand rate making, loss rating, and the financial impact of the market on rate. I also understand the fact that reserves are just that, in reserve. The carrier is making money on those reserves until they are paid out. This is a very complex business and I think I have a very good grasp of the ins and outs.
August 18, 2014 at 10:23 am
Agent says:
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Don, they may have to file base rates with the Insurance Dept, but they don’t have to file their black box models that do all the background on score and dozens of other factors.
So Don, if an insured is a victim of ID fraud and the resultant bad credit score, do they deserve a double digit increase on their next renewal? Inquiring minds would like to know.
If you were an insurance professional, you would know that insured’s can request credit no be factored into underwriting and/or rating if they have been the victime of identity theft. Most states also allow opeople to request an exemption due to other factors that may have had an adverse impact on credit such as, militry deployment, divorce, death of immediate familty, etc.
The facts are the facts, credit scores and losses are highly correlated.
In addition, the more factors insurance companies can use, the more accurate the rates and less impact a single negative factor can have on the rate.
August 14, 2014 at 4:03 pm
Agent says:
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Dave, in Texas credit scoring is used on both lines, but it is not even. Rate taking on both lines is pretty heavy and in Auto, it is often called maintenance rating. Get more for the renewal without having any losses. This game is getting too complicated and too many factors behind the scenes are applied.
Editor’s Note: The article appears to be correct in stating Mass. prohibits use of credit in pricing home insurance. According to the Mass. Division of Insurance: “In Massachusetts, the use of consumer credit information is prohibited in the rating of home insurance, or setting of price, but it is permitted under both state and federal law (Fair Credit Reporting Act) in underwriting home insurance, or the determination of risk.”
Dave, in Texas, they use score on both although the Auto score is different than the HO score. Perhaps Massachusetts went old school on the Auto and underwrote per tickets, accidents, youthful drivers and zip code to rate.
Keep in mind that in tough economic times when a lot of people’s scores are down, which is what you are implying in your comment, the average level of premium will adjust along with that. It doesn’t just mean that those people will all pay more and insurers will reap the rewards; there is no gouging.
The “strategy to be profitable” mentioned above is a strategy to charge the right rate to each risk. Essentially leveling the loss ratios for each group of insureds, not matter how you choose to divide the entirety.
Bryan, good luck keeping insureds getting 20-25% rate increases with no losses and good credit score. The customer just isn’t going to pay it and they will search until they find a more affordable premium even if it doesn’t have good coverage.
So if I have no credit because I don’t owe anyone anything and have a positive net worth due to having no debt, would my home owners insurance be higher than someone barely scraping by but because they a substantial amount of debt and can make minimum payments on those debts have a 800 credit score?
Maybe. You’ll get a discount for not having a mortgage, and you should just be at mean for having no credit score. This happens to a lot of older people who are still in their family home and made it a point to not use credit whenever possible.
Damon, who would you trust more, a pilot with 50,000 hours of flying time with no accidents or an inexperienced pilot with a few thousand hours? Give me the more experienced pilot every time. By the way, many companies penalize the senior market with higher rates because their score is not as high due to no debt and little credit usage.
Most states require that a credit factor of 1 be applied if there is a no-hit when attempting to run credit. If that is not required, different companies have different rules and factors that may add to your premium.
Important to remember, most insurance scoring models focus on payment history, not debt or net worth. It is not the same as a FICO score.
JP, I am afraid you are right. This is the fallacy of credit score models. Many times, more mature people do not have a mortgage, car payments, do very little credit card purchases, pay their bills off on time and they have a worse score than younger people who are loaded in debt. It is just the opposite of how it should be.
As a P&C actuary, I’d like to comment on how credit is used. Insurers don’t just use the credit score you get from TransUnion. They look at specific variables that correlate to loss experience which have completely different weights than how credit scores are calculated. Personal lines companies are looking to snag what they perceive as the “best” customers and try to segment with finer and finer detail to get them. Using some credit variables (read: not all) has proven to be hugely predictive of loss costs.
I realize most of you are agents with relationships with PH and I am an actuary that looks at cold, emotionless numbers, but we do try to price exposures to match their risks. If it makes you feel better, most times when there is a large rate increase/segmentation change, it is because the actuaries finally convinced leadership that it needed to be done.
Unfortunately Justin, the cold, emotionless actuaries are driving customers away from agents with their models of pricing risk. Customers with excellent credit history and no claims are supposed to catch a break on premiums, especially when they bundle their coverages. That doesn’t seem to be happening now. This is a backward step for the industry and the models are so complicated, no one seems to know what is going on. Aren’t you lucky you don’t have to explain yourself to a customer?
Thankfully you are not on the company side. In the insurance industry, there is no room for emotion when making pricing decisions. Unlike you, companies are required to back up anything they do with real data. Try telling a state, “we have a gut feeling”. Until you work as a product manager, as I have, or actuary, do not make judgements.
Yes, insurance can be a cold business. But there is a lot of capital and jobs on the line. One poor decision could lead to millions of dollars in losses and down-sizing.
Ron, thank God you are not on the agent side of this industry. You wouldn’t have any business on the books. From your attitude, the sales would not go so well and the frustrated customer would walk out of your office and then tell their friends not to do business with you. There is no common sense underwriting anymore and the rating models used are driving customers away. Good customers with excellent credit and no losses with good property and Auto exposure should not be punished because of some geek who designs something at the company level that changes the whole picture.
We agree that I should not be an agent. I am OK with that.
Do you know that insurance are set based on future exposure and not the past? If you have clients with excellent credit, no losses, and good exposures, why can’t you find them a better rate? Isn’t that your job?
Nobody is being punished. It is the free market. Should the government set the rates?
August 15, 2014 at 4:37 pm
Agent says:
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Actually Ron, I do my job and often find a better rate since I represent several carriers. I do hate playing musical chairs with clients on their coverage. When my company rep comes in to the office, we have some frank discussions on why they aren’t winning more business. Many are like you and think their way is the right way. As an example, Travelers ran off about a third of their business with our agency with their predictive modeling and unending taking rate increases. When they woke up after 4 years, they had an awakening and realized the business was going away. We only told them about a dozen times that their rates were lousy and gave them plenty of quote comparisons, but the wheels at Home Office turn very slowly.
August 15, 2014 at 9:05 am
Don Quixote says:
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I think Justin explained it quite well.
It’s a pretty simple concept — if you have a poor insurance score, you will pay more for your policy because your level of financial responsibility, as measured by the insurance score, is highly correlated with the risk you pose for a loss. Conversely, if you are financially responsible and have a good score, you will receive a more favorable rate since you pose less of a risk.
I would like to add that as someone who has been on both sides of the coin as both an agent and company rep, there are strong correlations between financial responsibility and filing of claims. Where it plays a bigger part in determing how risky a particular party is going to be. Generally, folks with lower credit scores are having financial difficulties, that is true. Based on my personal experience and going through the same particulars, people tend to become more lacking in maintaining their homes/autos and other items are prioritized. Hence, homes breaking down and causing a loss.
Not so much anymore Don. I have several customers with excellent credit score, no losses and they are still getting 20-25% increases. How is that receiving a more favorable rate? I understand about poor credit and losses paying a higher rate, but the new wave is hurting the better customer.
What does this have to do with credit scoring if they have excellent credit? Sounds like TX is having some problems.
August 15, 2014 at 4:41 pm
Agent says:
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Are you that dense Ron? Apparently you have little understanding of rate make up. Credit scoring is driving the engine now and poor models are re-tiering customers into a higher rate class. The higher the tier, the higher the premium. One of my carriers has 90 tiers depending on where the model fits them in with credit scoring. I have seen tier jumps up to 20 tiers on customers with no change in credit score. Put that in your pipe dummy.
August 18, 2014 at 8:23 am
KY jw says:
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It sure sounds like a TX problem, Agent. I’m not seeing that in KY.
August 18, 2014 at 9:08 am
txmouthbreatherboogereatertx says:
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Y’all thick as fleas. Pray tell.
August 18, 2014 at 6:11 pm
Agent says:
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KY, you want to know how sophisticated and complicated rate making is? Carriers have it all down to a science now and put so many variables in, it would blow your mind. Right down to the zip code, they can tell you what their loss experience is in any particular area, number of roofs they insure, number of auto accidents etc. I had a customer move one zip code in our city which happened to be about 2 miles away and he got a rate increase because the zip code moved to had worse experience for the carrier. It had nothing to do with the insured at all. Terribly unfair by the way.
August 19, 2014 at 7:45 am
KY jw says:
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Actually, Agent, I do understand rate making. I’ve had the joy of learning how many different companies calculate rates on personal lines. Rating is complicated and detailed.
However, that doesn’t change the fact that I’m not seeing tier shifts without a change in credit or experience in KY.
August 19, 2014 at 1:02 pm
Ron says:
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Agent,
I know ratemaking up and down, especially in Personal Lines.
The point I was making is that if their credit is excellent, how did credit scoring cause their rate to go up?
Most states do not allow credit to be used in renewal undwerwriting. If they are doing that in TX, you need to talk to your fellow Conservatives down there. We do not allow it in NY.
August 19, 2014 at 1:23 pm
txmouthbreatherboogereatertx says:
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I guess Opie is stuck in the 80’s or all the blow he did is still stuck in his brain. OR he just watched Teenage Mutant Ninja Turtles because he likes turtles.
Radical
Tubular,
Get bent
take a chill pill
not
put that in your pipe
that’s what she said
August 15, 2014 at 10:01 am
Libby says:
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Justin: If insurers don’t just use the credit score from TransUnion, what do they look at. You mention specific variables that correlate to loss experience but don’t elaborate.
Just what kind of data are they privy to that wouldn’t be reflected in my TransUnion credit score? Or do they use the data from my credit score to further qualify me (i.e. what kind of debt I have, where I spend my money, etc.)
I’d be interested to know from someone in the “ivory tower.” We foot soldiers rarely get an opportunity to speak to one of you.
Libby, one of the criticisms is that every company has their own “black box” when it comes to their Insurance Score and they will not share that info with you. My stance has always been that the insurance scoring models should be standardized across the board in terms of what is being used as a variable in the insurance scoring model. Companies would be able to charge whatever debit/credit for a particular variable that they want but right now WHAT is being used as a variable is all over the place.
I agree Empo. It is all over the map on the variables used and it makes little sense and companies will not share much with the agent on how they arrived at it. These renewals are just spewed out, downloaded and the next thing you know you have an unhappy customer. We spend a lot of time re-marketing accounts when a company does this.
You, and I for that matter, couldn’t follow the actuary science behind it. Those guys are certifiable. Actually, Agent, maybe you could follow it. And, each carrier has its own experience in a given LOB, product and territory, hence, variation. Can’t cookie cut rate unless you want to kill competition in the marketplace. Are you a socialist?
August 15, 2014 at 1:18 pm
Libby says:
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I guess from a competitive standpoint that makes sense, but Justin is an actuary so I wanted to know what his carrier uses (assuming anonymity of course.) The whole thing is confusing to me, but you have to understand I did personal lines back in 1980 when we manually rated everything. We didn’t even have desktop computers! The accounting “computer” took up an entire room. LOL!
But seriously, what kind of data are they mining to come up with this other than your credit score? How much revolving credit you have versus mortgage debt? If you have credit on luxury items? They don’t ask for income level, so I’m not sure how they can calculate the ratios.
Just wondering, as I am always curious and wanting to know more.
Libby – to compute a credit-based “insurance score,” the insurer’s credit models are using the same DATA that TransUnion or Experian has, but they are spinning it differently in order to come up with a score.
The FICO score is calibrated to determine risk of not paying off a loan, while the insurance score is calibrated to determine which data elements are most predictive of claims. Insurers are also prohibited from looking at certain data elements.
For example, most insurance scores are more concerned with recent credit inquiries rather than debt-to-limit ratio.
August 15, 2014 at 4:34 pm
Libby says:
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Thank you, Ratemaker. I wasn’t sure if they were mining data from sources other than my credit report to compute the score. That makes sense to me.
August 15, 2014 at 1:42 pm
Ron says:
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EmpoftheEarth,
What you are proposing is socialist. If we have standardization where would competition come from?
The reason insurance scoring is proprietary is so each company can focus on what they consider a target market. If someone comes up with a better model, they make more money. It is called the free market.
Should we also standardize other products in the marketplace and disclose all of their secrets?
We need to maintain the free market to maintain the economy.
Where is Agent condemning this step towards Socialism? Oh yeah, he agrees with EmpoftheEarth because re-masrketing renewals and actually talking to his customers is too much work.
The problem is that actuaries have relied on proxy variables to evaluate risk. We are just now getting to the point of obtaining the causal variables via Telematics devices. I don’t care about your credit, whether or not you are married or a good student. I care about how, where, when and how often you drive. Telematics will put companies in a better position to assess risk and at the same time, it makes a lot more sense to the consumer. This, however, will come with a whole new set of consumer concerns related to privacy.
Wow Libby, you have been lying about your age all these years. No wonder you are thinking so hard about retirement. I was there in 68-69 and had the unenviable task of shipping bodies back to the states on huge pallets. The C-141’s would come in from Nam bringing our boys back, they would be put in a warehouse and then shipped out on other planes. Caskets stacked to the roof. How depressing. Thank you LBJ for ramping up that war.
I was 12 to 14 at the time, Agent. We were MACV stationed “up on the hill.” My Dad was in Vietnam while we were stationed there. He got leave to come home about every 6 weeks or so for a few days. My brother was born there.
Was your dad an officer to merit these privileges? I had a pilot friend who flew Super Sabres in Vietnam and got to R&R at Clark after every 20 or so missions. However, his family did not get base housing and they had to live in Angeles City outside the base. That was not where you wanted to live, by the way. Finally, she packed up and went back to the US and waited for him to finish his tour.
Agent – I’ve told you a number of times my Dad was a graduate of West Pointe, green beret, Ranger, and HALO jumper. He was an LTC at the time and was hand-chosen to be Province Senior Advisor in Darlac Province in the northern part of South Vietnam. So, to answer your question, yes, he was an officer, spoke fluent Vietnamese and was a previous instructor at the Command and Geenral Staff College in Ft. Leavenworth. R&R at home was part of the deal and the only reason we moved there.
August 18, 2014 at 2:07 pm
Libby says:
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As you can tell, I’m very proud of my father.
August 18, 2014 at 3:22 pm
Agent says:
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I guess that explains the privileges accorded to him. You had to be pretty far up the food chain to have families at Clark if they were doing duty in Nam. It is a good thing you were not there when the volcano blew up and completely covered what used to be Clark. I don’t know if the Filipinos ever dug out of that much ash and debris.
August 18, 2014 at 3:29 pm
Libby says:
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You could see that volcano from our backyard.
August 18, 2014 at 3:39 pm
Libby says:
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Or maybe it was Mount Arayat. Don’t remember exactly. But I do remember a Jeepney ride to Baguio once. I didn’t walk for a week.
The volcano was visible from the flight line as well. I, too visited Baguio once only I took the Baguio express which was a C-47 cargo plane and we went up there and played golf on the side of the mountain. It was an interesting landing and take off from that strip. I only did it once and that was quite enough.
You’re awfully quiet about Rick Perry’s indictment. Possibly 109 years of “putting a square flesh peg in a round hole” in a Texican Pokey. I’ve seen you post about dog catchers that have done less, yet no mention of this.
Agent probably wanted him arrested after he wore that Brokeback Mountain coat in his ad during the last clown car campainging for the nomination. I’ve noticed he’s traded in his Brokeback Mountain coat and his cowgirl boots for loafers and specs that are meant to make him look smart. You know what they say about lipstick on a pig down there, right?
In the movie, Ned Beatty’s character, “Bobby”, was an insurance agent, “Lewis” was played by Burt Reynolds, “Ed” by Jon Voight.
There is dialogue between Ed and Lewis talking about Bobby at the beginning of the movie that goes soemthing like:
Lewis: “Can that chubby boy handle himself?”
Ed: “Bobby? He’s rather well thought of in his field, Lewis.”
Lewis: “Insurance? Sh__t! I never been insured in my life. I don’t believe in insurance. There’s no risk.”
Why would credit data be used by carriers if isn’t predictive? It cost money and manpower to integrate the use of credit data in rate calculations and rating software. Not to mention dealing with Insurance Depts. Yet there’s a large number of comments on this topic that don’t believe the data. That’s ridiculous if you aren’t in product management or a pricing analyst. How can you know? Or is it just a “gut thing”. Now if you want to argue whether or not it’s fair to use credit with underwriting or rate setting, then that’s a legitimate topic.
SW, I sometimes wonder how insurance carriers made it and grew year after year when they didn’t have credit score to price their products. Back in those days, they had real underwriters exercising judgment, common sense and evaluating things other than credit to write a piece of business. Now, what we have are computer programs doing the underwriting, no common sense, no judgment on whether to write something or turn it down.
Are there any facts available to the public showing that low credit score insureds are a greater risk and thus subject to a higher premium? If there are, please be so kind as to let me/us know now to finde this information. Thanks. Mike
Insurers have to file their rating plans for personal lines in most states. They have to convince the regulator that it is statistically justified. In many states these rate filings are available to the public.
Mike, not sure the “facts” would convince the doubters on the relevance of credit on pricing. Their argument would be that the data is inaccurate, used incorrectly, etc. Like Ratemaker states, the data must be powerful enough to convince some departments to allow it to be used since they review it and approve it. For the states that don’t allow it, it may not be because it isn’t accurate, it may be more that it’s not fair.
Mike, not saying this is a neutral source, but the Insurance Information Institute has a page on credit scoring. One of their cited studies:
“the FTC found that auto insurers’ use of insurance credit scores leads to more accurate underwriting of auto insurance policies in that there is a correlation between insurance scores and the likelihood of filing an insurance claim. The FTC report, Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, released in July 2007, also states that credit scores cannot easily be used as a proxy for race and ethnic origin. In other words, credit scoring predicted risk for members of minority groups in much the same way that it predicted risk for members of nonminority groups.”
If you think about it, it makes sense. If I had a $1,200 claim with a $1,000 deductible, I am more likely to file a claim for the $200 if I have no disposible income. Someone more liquid might self-insure that loss waiting for the “big one” before reporting.
Libby, you would not have any insurance with “no disposable income”. How would you pay a premium for coverage with no income? Perhaps if you said you had a limited disposable income, your post would have more validity.
Agent – Why do you try so hard to argue every single point I make. Money for insurance premiums is NOT disposable income. Disposable income is just that – DISPOSABLE. Your mortgage/rent, food, insurance etc. are not paid by disposable income. Going to the movies, out to dinner, a new pair of shoes. That’s what people use disposable income for.
August 19, 2014 at 12:01 pm
txmouthbreatherboogereatertx says:
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Just need to learn how to “squeeze a dollar until it screams!” like Opie the Okie and his Grand Pappy, Pee-Paw, and Robert E. Agent did.
August 19, 2014 at 12:32 pm
Agent says:
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Libby, you argue every single point I make on every subject and then complain when I call you on a post. Income is income and it all comes out of a consumers pocket to pay bills and other expenses. I do agree that better off clients may not file a claim for a small difference in the deductible and payment. They don’t want the hit on their score and the subsequent increase in premium. Frequency is also an issue. I wrote a guy last year with 4 comprehensive claims for glass etc. He filed them, was paid and his underwriting score wasn’t as good as a result.
August 19, 2014 at 1:06 pm
iloveinsurance says:
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How do you get so many likes so soon after you post something, Agent?
August 19, 2014 at 1:19 pm
Libby says:
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So you do agree with me? And income is not income. If you have $4,000 in income and $3,000 goes to pay your bills, you have $1,000 DISPOSABLE income left. If you have $3,000 income and $3,000 goes to pay bills, you have NO disposable income. Get it?
Quit arguing with me on every point I make. I DO NOT do that to you. Only when you don’t make sense, so I understand why it seems like every post to you.
And Ilikeinsurance – he has so many thumbs up right after his posts because he puts them there all by himself. That is also why Ron’s, txmouthbreatherboogereatertx’s, and my posts are all thumbed down into oblivion. Good job, Agent.
August 19, 2014 at 2:48 pm
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Libby, your nose is getting longer by the minute. You not only argue with me on every post I make, but horn in on any post I make with another commenter. In fact, you lead the league in horning in to put your hateful leftist comments in. By the way, the government is very good at taking our disposable income and spending it unwisely. People would like to have more disposable income, but don’t have it. I saw an article today that up to 1/3 of Americans have no retirement savings at all. That is an amazing statistic.
August 19, 2014 at 3:40 pm
Libby says:
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Oh, Agent. Still trying to insinuate that I lie? Pitiful. I don’t argue on every single point. That’s an exaggeration and you know it. Now who’s nose is growing?
As far as “horning in” goes, this is a blog. It is not intended for intimate, one-on-one conversation. I do not “horn in” but post my two cents worth which I am entitled to do so you can then thumb it down into oblivion. LOL!
August 19, 2014 at 9:48 am
SWFL Agent says:
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Good point Libby. While there’s a large number of people against the use of credit data for underwriting & pricing, my guess is that a majority will admit there is some validity to the credit/price relationship. The real issue may be more of fairness and/or accuracy of credit data. Can you imagine if the industry just discovered the male/female underwriting variable and rolled this out in 2014. We’d have a huge pushback from the LGBT community.
Agent had this problem when he tried to marry his Ronnie blow up doll. He tried to put all his debt in Ronnie Doll’s name so he could live off the grid for a bit while he “found himself”. It brings a whole new meaning to “putting it on plastic”.
In case the posters on this article didn’t notice it, here is what happened January 1st, 2014
Top Medicare Tax went from 1.45% to 2.35%
Top Income Tax bracket went from 35% to 39.6%
Top Income Payroll Tax went from 37.4% to 52.2%
Capital Gains tax went from 15% to 28%
Dividends tax went from 15% to 39.6%
Estate Tax went from 0% to 55%
All of this as a result of Obamacare passed by Democrats with no bi-partisan support.
Good, now we can start paying on the “Murrican Express” balance we have. If Texico would have a colony tax, they could pay for their own things, and the United States could use the revenue it uses to support Texico to pay down the rest of the debt out there. Then we could lower federal taxes. That is unless we can prevent Texicans from starting more wars.
Are you saying that, if someon inherits $10,000, they will have to pay a 55% tax on it? I don’t think so.
The top income tax bracket went back to where it was supposed to be. The reduction to 35% under the temporary “Bush tax cuts” was intended to be exactly that – temporary. Obama extended these cuts for years (you should be thankful to Obama – he gave you more than you were supposed to get), and finally let some of the temporary cuts to expire, which was supposed to happen several years ago. The temporary tax cuts were irresponsible in the first place, and the only people who really benefitted from them were the rich. Working people only saved a few bucks. As a result of the irresponsible tax cuts to benefit the wealthy, we went from a surplus to a huge debt, and still a crumbling infrastruture.
When you have a surplus, that should be used for infrastructure, and some of it saved in case you get into a war or two. The rich don’t go out to fight (they leave peril to the poor); the least they can do is pay for it. Our military protects our country, and the rich have the most at risk. In other words they have the highest levels of coverage – does that ring a bell? Shouldn’t someone with a higher level of coverage pay a higher rate?
Are you saying that we’re all going to pay 39.6% on all dividends and 28% on all capital gains? Besides, why should people have to pay a higher rate on money they work for than they do on money they do not work for. Dividends and capital gains are free handouts. You don’t work for that money; it even accrues while you’re in bed asleep.
Overall, it looks like all of the points you made aren’t a problem for most of us regular folks. These things mostly affect people who have been fleecing this country for decades.
The increase in capital gains doesn’t apply to the first $250,000 in capital gains. I think when you earn over $250k in capital gains in one year, you can pay a little extra on the gravy.
But way to go to misrepresent the truth, Agent. Or should I call you Pinnochio?
In addition, 5,340,000 for estates of persons dying in 2014 can be given by an individual, before and/or upon their death, without incurring federal gift or estate taxes.
I don’t know about you, but I don’t know anyone with an estate over $5.34M. Let alone one that’s leaving it to me.
Again, misrepresent the truth all you want Agent. It’s the same as lying.
That’s what the tea party does. They get the ignorant masses all riled up about some tax increase that won’t even affect them. Then the billionaires and multi-millionaires in charge can get these people to act against their own best interests. For instance, if Richboy pays less in taxes, then our water bills go up, to make up for the lack of funds. The only thing the leaders have to do is include the word “God” or the word “Jesus” in their speech, and suckers will believe anything they’re told.
August 19, 2014 at 5:56 pm
Agent says:
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Speaking of ignorant masses getting riled up, how about Eric Holder, Al Sharpton & Jesse Jackson up there in Missouri riling up the protestors. There may be a full fledged South Central riot soon, especially after another shooting a mile away as a young black was holding up another convenience store with a knife, charged Police and then was shot. Suicide by cop is an apt term for it. The country is rapidly descending to be out of control and race baiters are responsible for much of it.
It’s called Civil Rights Opie. In the US cops wear badges and uniforms that symbolize the “Constitution”, or at least that what they pageantry says it does, which also means there is more expected from them. Same goes for any uniformed employee. I understand in Texico, your cops either wear 10 gallon hats, spurs, and ride horses, or just hooded bed sheets.
Why couldn’t the cop have shot the guy in the leg to take him down? Isn’t he trained to be an accurate shot? Why did he have to unload his weapon on the guy and kill him? Seems like they’re kill happy in Missouri. Maybe they should merge with Texico.
I think Shawnta should get at least 20 for this offense along with her co-conspirators. They endangered lives with this staging scheme and looked to reap the rewards.
Yes, we know Brown was just a lovable bear of a kid. He just came from a strong armed robbery of a convenience store. Had the confrontation with the cop, slugged the cop breaking the orbital bone of his eye and then tried for the gun. We know this is all Police brutality, right? It will be interesting to see how the facts come out. I am not sure where they will find a jury in the State of Missouri to hear this case since it has been sensationalized by the media, we have Holder the ultimate racist along with Sharpton and Jackson on the scene to stoke the racist fires even more.
There you go again with half truths and down-right lies. The kid was shot 6 times, some in the back, and he was totally unarmed. The cop only stopped him because he was walking in the middle of the road. He didn’t know anything about the robbery of $48 worth of cheap cigars.
And besides, my comment was about the 2nd shooting – not this one. The guy had a knife. The cop could have just taken him down with a shot to the leg. He didn’t have to empty his gun into him.
But since you are from Texas, where the execute innocent black men all the time, I can see where you are all for this type of police “justice.”
Since when is the sentence for petty robbery and walking in the middle of the street death?
Libby, you need to stop watching Moveon.org, Media Matters or MSNBC and find out the real news. Autopsy now says no shots in the back. The cop was attacked and slugged causing his injury and 12 witnesses confirmed the Police version. Before you start assuming the leftists are telling the truth, let’s let the facts of the case play out. You are just like your crowd, convicting a cop before he is even charged. On the second guy, he would have cut the officers throat in a heartbeat had he been allowed to. Shooting someone in the leg doesn’t always stop them. The movies are not real life.
Agent – once again you’re full of shit. Results of the autopsy haven’t been released to the public yet. They just went over to the prosecutor’s office on Monday.
Why don’t you get YOUR facts straight before talking out-yur ass.
So here we are 7 months later after a thorough investigation locally and by the Justice Dept and the officer was cleared of wrongdoing and the “Hands up, don’t shoot” crowd was completely wrong. Where does he go to get his reputation back? Race baiters like Sharpton, Jackson and Holder are a scourge on our society.
Opie,
We all know no matter what happens, the outcome will be in favor of the cop. Even if the cop is found guilty he will not face the punishment that would fit. He will probably still be able to own and conceal a penis replacement. Your two pipe must be as wide as a mason jar from all that “service” you do for the uniform. As a point to your jury comment, I’m not sure where they will find a judge in that will be capable of non bias. Word is on the street, the current judge and his family have generations of tax payer funded “authority” positions.
The more we make him thumb comments down, the more we take time away from managing his firecracker stand, the best firecracker stand in all of West, Texico. Thus we can bankrupt him and the looting will continue in the Wild Middle East of North American.
Well, I’m taking a break from IJ. This censoring is childish and irritating. I don’t want to have to open up comments to see what was said in order to comment.
Agent, have fun playing with yourself from now on you immature jerk. It doesn’t appear you have anything better to do with yourself.
I agree. I think I’m going to change my name and get a fresh start. After all the accusations of me stealing his “moniker”, I think I will change my name to Agent. I just hope I don’t get a bunch of emails from those asking when they can get their back rub they were promised by the original Agent.
“Where’s the newspaper boy, sure hope he brings me some good news.”
Umm…isn’t credit score usage against the regs in Hawaii? How is Quadrant getting a credit-based premium differential for Hawaii home?
I disagree with gouging people because of credit. Some people, especially these days may have been having issues with losing a job, paying medical bills, divorces,etc that have put them in financial trouble beyond their means. Not everyone with poor credit files a claim. Contrary, I find the people with more money and financial stability are the ones who file claims most often and are most costly to the insurer..
If the use of credit scores is a poor predictor of insurer losses, the companies using it will be less competitive and lose market share. There is no incentive to keep using a bad predictor.
Alternately, if you have a better way to measure risk, you might think about turning this skill into profit from your own insurance company start-up.
Ellie just knows that sophisticated insurer models are incorrect and he’s correct just be he says so. What a neanderthal. I’m sure he’s the first to scream at someone as a “flat-earther” if he or she takes exception to some of the global warming studies.
Jaybar, how many guys do you know with a name Ellie? You may want to check your grammar as well. Who is the Neanderthal here?
I agree with you partially perplexed. What we are finding as agents these days is that companies are passing on rate increases even if the insured has excellent credit and no losses. They re-tier Homeowners policies upward, surcharge if there is a mortgage on the home and bump the value up significantly to get that extra premium dollar. It is not uncommon to see 20-25% increases and that keeps agents hopping to find affordable coverage the insured will be willing to pay.
This is so true.
I’m sure the insurers have the data to back up the claim. It’s easy to look at credit scores vs. loss history. But if we forced everyone to buy it, I bet the average premium would go down $2500 a year.
I completly agree with you Jack.
That was sarcasm.
KY- just the last sentence!
Jack, I remember a few years back when carriers were pushing bundling of policies so the customer could save on both policies if they had both with them. Now, you can bundle, have excellent credit score and no losses and still get a double digit increase. The agent is the one who has to look the customer in the eye and try to explain why the premium went up so much and we have egg all over our face. I would like for a company rep to sit down with a customer and try to explain this to them. They can’t.
Agent,
We all have a role in this industry. If you do not like servicing your purpose, then do something else. My guess is that you are a salesperson, not an insurance professional. Nothing wrong with that. We need salespeople and I am sure you are very good at what you do.
Company people tend to be more technical and understand the compexities of insurance. The job of the agent is to translate into language the customer understands. That is why you are paid a commission.
Ron, allow me to borrow one of your favorite questions. “Why must you insult me with every post”? I have been an Insurance Professional before you were a gleam in your fathers eye. Tell me analytical Ron, why can’t company people explain their rating models to agents so we can understand where they are coming from on pricing? The answer is that they can’t. It is all in the background in the computer system. I have asked more than a few of them and the crickets are still chirping. Their technical answer is no answer at all.
Agent,
If you are an insurance professional, they act like it. My opinion of a professional is someone who has significant depth and breadth of knowledge of their industry. If you do not understand rating models, underwriting, or pricing you are not an insurance professional.
What is your standard line when someone asks why credit is used in underwriting and pricing?
There is a very good reason why credit is used so widely in insurance. IT WORKS.
Rating models are proprietary information. Even if it wasn’t, they are so complex that you would need years of pricing experience to understand them from 10,000 feet, let alone if you drill down to the details. I have spoken to very few agents you have a deep enough understanding of pricing and/or underwriting to explain any model.
Agents are salespeople in most cases, not insurance professionals. If you take that as an insult, so be it, but it was not intended as such.
Hey Analytical Ron, you have no clue what it takes to be a professional insurance agent. You are not involved in Personal Lines, do not know what is in a typical policy and certainly don’t know how to explain coverages to a client. You are just some kind of broker who likes to pontificate and insult me. So be it. I interact with my clients every day while you sit in your cubicle wondering why you didn’t get in the real world business of insurance. Take a hike bub.
“Before you were a gleam in your father’s eye”
Wow, you really are old Agent!
Agent,
I agree with you that I, “have no clue what it takes to be a professional insurance agent.” And you have no clue what is takes to be an insurance professional.
Agent- I just tell everyone the increase is due to Obamacareless and watch their face. It works on my end!
You’re not much of an agent then, are you?
Opie,
I don’t think that’s egg on your face
What a great idea, Jack – let’s force everybody to buy homeowners insurance from a government clearing house. There will be lower premiums and fewer exclusions. But – if you like your present homeowners policy, you can keep it. What could possibly go wrong?
Hi wvagt. Good idea. I am sure the government can do a lot better for us since they have an exemplary track record on so many fronts. Let’s see, we can take the current comprehensive HO form in that state and force it on all states. Never mind the huge deductible and that it won’t cover many things formerly covered. The government knows best and we should follow blindly like lemmings into the pit.
Exactly, and for insurance company’s to be allowed to capitalize on these misfortunes is absurd. Did you know if there is an error or if you are a victim of stolen identity the carrier could careless. Errors are impossible if not fixable period. This was covered a few months ago on 60 Minutes.
Glenn,
You are correct.. Capitalization is what is forced upon most insureds. I see error’s on reports all the time and good luck trying to get it fixed which falls to the insured to take care of.
Glenn, many of our carriers offer ID Theft on their HO policy, usually for about a $15,000 limit for expenses in restoring their good name and credit. I have not seen a claim yet on anyone, but I wonder how those cases turn out and how much help the adjustor is to the customer.
Did anyone see the story on Community Health Systems being hacked by Chinese hackers with access to 4.5 million patient records including Socials and personal info? I wonder what kind of mischief they can cause and how it will affect credit scores in our industry.
Your data analysis is subjective and based on a small sample size, based (from what you’ve posted) entirely on anecdotal evidence. Insurers analyze millions of data points and come to the opposite conclusion based on hard numerical data. Whose results do you think are more credible?
I agree with Ellie. People that have more money and are financially stable seems to file more claims.
If their roof has a little hail damage they get an entire new roof, new gutters, new garage door, etc. I guess they don’t fear cancellation of their policy as much as people that had a loss of a business loss that affected their credit.
I pay probably 60 % more in homeowners premiums and have never once in 17 years filed a claim.
Ann, it is all in the Algorithms. Actuaries hired by the company are always looking for a way to increase premium and when it is too much, they cost the companies business. Then, they revise it and make it look like the company gives credits to reduce premium. Some of your increase is natural valuation increases for Replacement Cost, some of it pure rate taking. If you haven’t checked with a good agent and compared prices, you should do so. I can see about 25% more in 17 years, but 60% is a bit much on a loss free customer with good credit.
Most, if not all, experience data would disagree with you.
Yes, Ellie, not all Pit Bulls attack, injure and maim but I don’t want one or one to even be around my family.
We’re talking strategy to be profitable here. Look up the theory or Insurance.
Careful Realist. The Pit Bull owners and lovers will be after you. We know they are such a gentle breed, right?
Massachusetts allows the use of credit in rating homeowners insurance, they do not allow the use of credit scores in writing auto insurance.
sounds discriminatory to me…..but companies do as they wish now-a-days
Actually, the insurance business is very highly regulated and price controlled so companies do NOT “do as they wish”. Companies are required to file requests for rate increases with the insurance department and they must provide their data to back up the need for the increase. Insurance, especially personal lines, is not a free market.
As far as credit score, it is absolutely valid as a measure of the quality of the risk. It has been proven over and over to be highly correlated with loss experience, which is why it has survived court battle after court battle. The fact is, if you are financially irresponsible, you are a higher risk than someone who has their finances in order.
Smoke and mirrors, Don, smoke and mirrors. Anyone can make the numbers look any way they want.
As for financially irresponsible, the last 6 years have been extraordinarily tough on even the most fiscally sound individuals.
I think that’s the point people are trying to make here.
Libby,
I do not believe you have ever worked in product management or as an actuary. Trust me, you cannot just make the numbers look any way you want when getting rates approved. They will question nearly every data point if something appears out of place.
In addition, it costs insurance companies millions of dollars if the data is not accurate. You will either charge too much and lose market share or charge too little and lose on the loss ratio.
No, I have not been a product manager but I’ve been in this business to know enough about carriers under or over stating reserves in order to either increase or reduce rates. Same thing with surplus. It happens.
As for complex personal lines rating, I know nothing about it. I am not an actuary and I assume you aren’t either.
Many carriers will knowingly offer rate at below loss levels in order to gain market share. This happens often in a soft market when investment income is high. Many of those carriers are not around anymore or are a shell of themselves (Fireman’s Fund, Crum & Forster.)
I respect you have had personal experience on both sides of the fence, but I’m not some simpleton like Agent. I understand rate making, loss rating, and the financial impact of the market on rate. I also understand the fact that reserves are just that, in reserve. The carrier is making money on those reserves until they are paid out. This is a very complex business and I think I have a very good grasp of the ins and outs.
Don, they may have to file base rates with the Insurance Dept, but they don’t have to file their black box models that do all the background on score and dozens of other factors.
So Don, if an insured is a victim of ID fraud and the resultant bad credit score, do they deserve a double digit increase on their next renewal? Inquiring minds would like to know.
Agent,
If you were an insurance professional, you would know that insured’s can request credit no be factored into underwriting and/or rating if they have been the victime of identity theft. Most states also allow opeople to request an exemption due to other factors that may have had an adverse impact on credit such as, militry deployment, divorce, death of immediate familty, etc.
The facts are the facts, credit scores and losses are highly correlated.
In addition, the more factors insurance companies can use, the more accurate the rates and less impact a single negative factor can have on the rate.
Dave, in Texas credit scoring is used on both lines, but it is not even. Rate taking on both lines is pretty heavy and in Auto, it is often called maintenance rating. Get more for the renewal without having any losses. This game is getting too complicated and too many factors behind the scenes are applied.
Editor’s Note: The article appears to be correct in stating Mass. prohibits use of credit in pricing home insurance. According to the Mass. Division of Insurance: “In Massachusetts, the use of consumer credit information is prohibited in the rating of home insurance, or setting of price, but it is permitted under both state and federal law (Fair Credit Reporting Act) in underwriting home insurance, or the determination of risk.”
Dave, in Texas, they use score on both although the Auto score is different than the HO score. Perhaps Massachusetts went old school on the Auto and underwrote per tickets, accidents, youthful drivers and zip code to rate.
Keep in mind that in tough economic times when a lot of people’s scores are down, which is what you are implying in your comment, the average level of premium will adjust along with that. It doesn’t just mean that those people will all pay more and insurers will reap the rewards; there is no gouging.
The “strategy to be profitable” mentioned above is a strategy to charge the right rate to each risk. Essentially leveling the loss ratios for each group of insureds, not matter how you choose to divide the entirety.
Bryan, good luck keeping insureds getting 20-25% rate increases with no losses and good credit score. The customer just isn’t going to pay it and they will search until they find a more affordable premium even if it doesn’t have good coverage.
So if I have no credit because I don’t owe anyone anything and have a positive net worth due to having no debt, would my home owners insurance be higher than someone barely scraping by but because they a substantial amount of debt and can make minimum payments on those debts have a 800 credit score?
Maybe. You’ll get a discount for not having a mortgage, and you should just be at mean for having no credit score. This happens to a lot of older people who are still in their family home and made it a point to not use credit whenever possible.
Who would you trust more, a pilot who has flown 10,000 times before, or a pilot who has never had the need to fly?
Damon, who would you trust more, a pilot with 50,000 hours of flying time with no accidents or an inexperienced pilot with a few thousand hours? Give me the more experienced pilot every time. By the way, many companies penalize the senior market with higher rates because their score is not as high due to no debt and little credit usage.
JP,
Most states require that a credit factor of 1 be applied if there is a no-hit when attempting to run credit. If that is not required, different companies have different rules and factors that may add to your premium.
Important to remember, most insurance scoring models focus on payment history, not debt or net worth. It is not the same as a FICO score.
I assume you are referring to personal lines rating.
JP, I am afraid you are right. This is the fallacy of credit score models. Many times, more mature people do not have a mortgage, car payments, do very little credit card purchases, pay their bills off on time and they have a worse score than younger people who are loaded in debt. It is just the opposite of how it should be.
As a P&C actuary, I’d like to comment on how credit is used. Insurers don’t just use the credit score you get from TransUnion. They look at specific variables that correlate to loss experience which have completely different weights than how credit scores are calculated. Personal lines companies are looking to snag what they perceive as the “best” customers and try to segment with finer and finer detail to get them. Using some credit variables (read: not all) has proven to be hugely predictive of loss costs.
I realize most of you are agents with relationships with PH and I am an actuary that looks at cold, emotionless numbers, but we do try to price exposures to match their risks. If it makes you feel better, most times when there is a large rate increase/segmentation change, it is because the actuaries finally convinced leadership that it needed to be done.
Unfortunately Justin, the cold, emotionless actuaries are driving customers away from agents with their models of pricing risk. Customers with excellent credit history and no claims are supposed to catch a break on premiums, especially when they bundle their coverages. That doesn’t seem to be happening now. This is a backward step for the industry and the models are so complicated, no one seems to know what is going on. Aren’t you lucky you don’t have to explain yourself to a customer?
Agent,
Thankfully you are not on the company side. In the insurance industry, there is no room for emotion when making pricing decisions. Unlike you, companies are required to back up anything they do with real data. Try telling a state, “we have a gut feeling”. Until you work as a product manager, as I have, or actuary, do not make judgements.
Yes, insurance can be a cold business. But there is a lot of capital and jobs on the line. One poor decision could lead to millions of dollars in losses and down-sizing.
Ron, thank God you are not on the agent side of this industry. You wouldn’t have any business on the books. From your attitude, the sales would not go so well and the frustrated customer would walk out of your office and then tell their friends not to do business with you. There is no common sense underwriting anymore and the rating models used are driving customers away. Good customers with excellent credit and no losses with good property and Auto exposure should not be punished because of some geek who designs something at the company level that changes the whole picture.
Agent,
We agree that I should not be an agent. I am OK with that.
Do you know that insurance are set based on future exposure and not the past? If you have clients with excellent credit, no losses, and good exposures, why can’t you find them a better rate? Isn’t that your job?
Nobody is being punished. It is the free market. Should the government set the rates?
Actually Ron, I do my job and often find a better rate since I represent several carriers. I do hate playing musical chairs with clients on their coverage. When my company rep comes in to the office, we have some frank discussions on why they aren’t winning more business. Many are like you and think their way is the right way. As an example, Travelers ran off about a third of their business with our agency with their predictive modeling and unending taking rate increases. When they woke up after 4 years, they had an awakening and realized the business was going away. We only told them about a dozen times that their rates were lousy and gave them plenty of quote comparisons, but the wheels at Home Office turn very slowly.
I think Justin explained it quite well.
It’s a pretty simple concept — if you have a poor insurance score, you will pay more for your policy because your level of financial responsibility, as measured by the insurance score, is highly correlated with the risk you pose for a loss. Conversely, if you are financially responsible and have a good score, you will receive a more favorable rate since you pose less of a risk.
I would like to add that as someone who has been on both sides of the coin as both an agent and company rep, there are strong correlations between financial responsibility and filing of claims. Where it plays a bigger part in determing how risky a particular party is going to be. Generally, folks with lower credit scores are having financial difficulties, that is true. Based on my personal experience and going through the same particulars, people tend to become more lacking in maintaining their homes/autos and other items are prioritized. Hence, homes breaking down and causing a loss.
Not so much anymore Don. I have several customers with excellent credit score, no losses and they are still getting 20-25% increases. How is that receiving a more favorable rate? I understand about poor credit and losses paying a higher rate, but the new wave is hurting the better customer.
Agent,
What does this have to do with credit scoring if they have excellent credit? Sounds like TX is having some problems.
Are you that dense Ron? Apparently you have little understanding of rate make up. Credit scoring is driving the engine now and poor models are re-tiering customers into a higher rate class. The higher the tier, the higher the premium. One of my carriers has 90 tiers depending on where the model fits them in with credit scoring. I have seen tier jumps up to 20 tiers on customers with no change in credit score. Put that in your pipe dummy.
It sure sounds like a TX problem, Agent. I’m not seeing that in KY.
Y’all thick as fleas. Pray tell.
KY, you want to know how sophisticated and complicated rate making is? Carriers have it all down to a science now and put so many variables in, it would blow your mind. Right down to the zip code, they can tell you what their loss experience is in any particular area, number of roofs they insure, number of auto accidents etc. I had a customer move one zip code in our city which happened to be about 2 miles away and he got a rate increase because the zip code moved to had worse experience for the carrier. It had nothing to do with the insured at all. Terribly unfair by the way.
Actually, Agent, I do understand rate making. I’ve had the joy of learning how many different companies calculate rates on personal lines. Rating is complicated and detailed.
However, that doesn’t change the fact that I’m not seeing tier shifts without a change in credit or experience in KY.
Agent,
I know ratemaking up and down, especially in Personal Lines.
The point I was making is that if their credit is excellent, how did credit scoring cause their rate to go up?
Most states do not allow credit to be used in renewal undwerwriting. If they are doing that in TX, you need to talk to your fellow Conservatives down there. We do not allow it in NY.
I guess Opie is stuck in the 80’s or all the blow he did is still stuck in his brain. OR he just watched Teenage Mutant Ninja Turtles because he likes turtles.
Radical
Tubular,
Get bent
take a chill pill
not
put that in your pipe
that’s what she said
Justin: If insurers don’t just use the credit score from TransUnion, what do they look at. You mention specific variables that correlate to loss experience but don’t elaborate.
Just what kind of data are they privy to that wouldn’t be reflected in my TransUnion credit score? Or do they use the data from my credit score to further qualify me (i.e. what kind of debt I have, where I spend my money, etc.)
I’d be interested to know from someone in the “ivory tower.” We foot soldiers rarely get an opportunity to speak to one of you.
Libby, one of the criticisms is that every company has their own “black box” when it comes to their Insurance Score and they will not share that info with you. My stance has always been that the insurance scoring models should be standardized across the board in terms of what is being used as a variable in the insurance scoring model. Companies would be able to charge whatever debit/credit for a particular variable that they want but right now WHAT is being used as a variable is all over the place.
So how are you going to tie this into global warming?
I agree Empo. It is all over the map on the variables used and it makes little sense and companies will not share much with the agent on how they arrived at it. These renewals are just spewed out, downloaded and the next thing you know you have an unhappy customer. We spend a lot of time re-marketing accounts when a company does this.
You, and I for that matter, couldn’t follow the actuary science behind it. Those guys are certifiable. Actually, Agent, maybe you could follow it. And, each carrier has its own experience in a given LOB, product and territory, hence, variation. Can’t cookie cut rate unless you want to kill competition in the marketplace. Are you a socialist?
I guess from a competitive standpoint that makes sense, but Justin is an actuary so I wanted to know what his carrier uses (assuming anonymity of course.) The whole thing is confusing to me, but you have to understand I did personal lines back in 1980 when we manually rated everything. We didn’t even have desktop computers! The accounting “computer” took up an entire room. LOL!
But seriously, what kind of data are they mining to come up with this other than your credit score? How much revolving credit you have versus mortgage debt? If you have credit on luxury items? They don’t ask for income level, so I’m not sure how they can calculate the ratios.
Just wondering, as I am always curious and wanting to know more.
Libby – to compute a credit-based “insurance score,” the insurer’s credit models are using the same DATA that TransUnion or Experian has, but they are spinning it differently in order to come up with a score.
The FICO score is calibrated to determine risk of not paying off a loan, while the insurance score is calibrated to determine which data elements are most predictive of claims. Insurers are also prohibited from looking at certain data elements.
For example, most insurance scores are more concerned with recent credit inquiries rather than debt-to-limit ratio.
Thank you, Ratemaker. I wasn’t sure if they were mining data from sources other than my credit report to compute the score. That makes sense to me.
EmpoftheEarth,
What you are proposing is socialist. If we have standardization where would competition come from?
The reason insurance scoring is proprietary is so each company can focus on what they consider a target market. If someone comes up with a better model, they make more money. It is called the free market.
Should we also standardize other products in the marketplace and disclose all of their secrets?
We need to maintain the free market to maintain the economy.
Where is Agent condemning this step towards Socialism? Oh yeah, he agrees with EmpoftheEarth because re-masrketing renewals and actually talking to his customers is too much work.
The problem is that actuaries have relied on proxy variables to evaluate risk. We are just now getting to the point of obtaining the causal variables via Telematics devices. I don’t care about your credit, whether or not you are married or a good student. I care about how, where, when and how often you drive. Telematics will put companies in a better position to assess risk and at the same time, it makes a lot more sense to the consumer. This, however, will come with a whole new set of consumer concerns related to privacy.
You’re back Opie. Thought we lost you in a Typhoon in the Philippines.
http://www.insurancejournal.com/news/national/2014/08/13/337429.htm/?comments
Agent – I was at Clark in 1969-71. When were you there?
Wow Libby, you have been lying about your age all these years. No wonder you are thinking so hard about retirement. I was there in 68-69 and had the unenviable task of shipping bodies back to the states on huge pallets. The C-141’s would come in from Nam bringing our boys back, they would be put in a warehouse and then shipped out on other planes. Caskets stacked to the roof. How depressing. Thank you LBJ for ramping up that war.
How do you theorize Libby is lying about her age?
I was 12 to 14 at the time, Agent. We were MACV stationed “up on the hill.” My Dad was in Vietnam while we were stationed there. He got leave to come home about every 6 weeks or so for a few days. My brother was born there.
I don’t lie.
Was your dad an officer to merit these privileges? I had a pilot friend who flew Super Sabres in Vietnam and got to R&R at Clark after every 20 or so missions. However, his family did not get base housing and they had to live in Angeles City outside the base. That was not where you wanted to live, by the way. Finally, she packed up and went back to the US and waited for him to finish his tour.
Agent – I’ve told you a number of times my Dad was a graduate of West Pointe, green beret, Ranger, and HALO jumper. He was an LTC at the time and was hand-chosen to be Province Senior Advisor in Darlac Province in the northern part of South Vietnam. So, to answer your question, yes, he was an officer, spoke fluent Vietnamese and was a previous instructor at the Command and Geenral Staff College in Ft. Leavenworth. R&R at home was part of the deal and the only reason we moved there.
As you can tell, I’m very proud of my father.
I guess that explains the privileges accorded to him. You had to be pretty far up the food chain to have families at Clark if they were doing duty in Nam. It is a good thing you were not there when the volcano blew up and completely covered what used to be Clark. I don’t know if the Filipinos ever dug out of that much ash and debris.
You could see that volcano from our backyard.
Or maybe it was Mount Arayat. Don’t remember exactly. But I do remember a Jeepney ride to Baguio once. I didn’t walk for a week.
Credit score hurtz poor people.
The volcano was visible from the flight line as well. I, too visited Baguio once only I took the Baguio express which was a C-47 cargo plane and we went up there and played golf on the side of the mountain. It was an interesting landing and take off from that strip. I only did it once and that was quite enough.
Tail number please
Opie,
You’re awfully quiet about Rick Perry’s indictment. Possibly 109 years of “putting a square flesh peg in a round hole” in a Texican Pokey. I’ve seen you post about dog catchers that have done less, yet no mention of this.
Agent probably wanted him arrested after he wore that Brokeback Mountain coat in his ad during the last clown car campainging for the nomination. I’ve noticed he’s traded in his Brokeback Mountain coat and his cowgirl boots for loafers and specs that are meant to make him look smart. You know what they say about lipstick on a pig down there, right?
LOL, I know what they said about a pig in “Deliverance”
Squeeeeeeeal!
In the movie, Ned Beatty’s character, “Bobby”, was an insurance agent, “Lewis” was played by Burt Reynolds, “Ed” by Jon Voight.
There is dialogue between Ed and Lewis talking about Bobby at the beginning of the movie that goes soemthing like:
Lewis: “Can that chubby boy handle himself?”
Ed: “Bobby? He’s rather well thought of in his field, Lewis.”
Lewis: “Insurance? Sh__t! I never been insured in my life. I don’t believe in insurance. There’s no risk.”
Why would credit data be used by carriers if isn’t predictive? It cost money and manpower to integrate the use of credit data in rate calculations and rating software. Not to mention dealing with Insurance Depts. Yet there’s a large number of comments on this topic that don’t believe the data. That’s ridiculous if you aren’t in product management or a pricing analyst. How can you know? Or is it just a “gut thing”. Now if you want to argue whether or not it’s fair to use credit with underwriting or rate setting, then that’s a legitimate topic.
SW, I sometimes wonder how insurance carriers made it and grew year after year when they didn’t have credit score to price their products. Back in those days, they had real underwriters exercising judgment, common sense and evaluating things other than credit to write a piece of business. Now, what we have are computer programs doing the underwriting, no common sense, no judgment on whether to write something or turn it down.
Are there any facts available to the public showing that low credit score insureds are a greater risk and thus subject to a higher premium? If there are, please be so kind as to let me/us know now to finde this information. Thanks. Mike
Insurers have to file their rating plans for personal lines in most states. They have to convince the regulator that it is statistically justified. In many states these rate filings are available to the public.
Mike, not sure the “facts” would convince the doubters on the relevance of credit on pricing. Their argument would be that the data is inaccurate, used incorrectly, etc. Like Ratemaker states, the data must be powerful enough to convince some departments to allow it to be used since they review it and approve it. For the states that don’t allow it, it may not be because it isn’t accurate, it may be more that it’s not fair.
Mike, not saying this is a neutral source, but the Insurance Information Institute has a page on credit scoring. One of their cited studies:
“the FTC found that auto insurers’ use of insurance credit scores leads to more accurate underwriting of auto insurance policies in that there is a correlation between insurance scores and the likelihood of filing an insurance claim. The FTC report, Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, released in July 2007, also states that credit scores cannot easily be used as a proxy for race and ethnic origin. In other words, credit scoring predicted risk for members of minority groups in much the same way that it predicted risk for members of nonminority groups.”
If you think about it, it makes sense. If I had a $1,200 claim with a $1,000 deductible, I am more likely to file a claim for the $200 if I have no disposible income. Someone more liquid might self-insure that loss waiting for the “big one” before reporting.
Libby, you would not have any insurance with “no disposable income”. How would you pay a premium for coverage with no income? Perhaps if you said you had a limited disposable income, your post would have more validity.
Agent – Why do you try so hard to argue every single point I make. Money for insurance premiums is NOT disposable income. Disposable income is just that – DISPOSABLE. Your mortgage/rent, food, insurance etc. are not paid by disposable income. Going to the movies, out to dinner, a new pair of shoes. That’s what people use disposable income for.
Just need to learn how to “squeeze a dollar until it screams!” like Opie the Okie and his Grand Pappy, Pee-Paw, and Robert E. Agent did.
Libby, you argue every single point I make on every subject and then complain when I call you on a post. Income is income and it all comes out of a consumers pocket to pay bills and other expenses. I do agree that better off clients may not file a claim for a small difference in the deductible and payment. They don’t want the hit on their score and the subsequent increase in premium. Frequency is also an issue. I wrote a guy last year with 4 comprehensive claims for glass etc. He filed them, was paid and his underwriting score wasn’t as good as a result.
How do you get so many likes so soon after you post something, Agent?
So you do agree with me? And income is not income. If you have $4,000 in income and $3,000 goes to pay your bills, you have $1,000 DISPOSABLE income left. If you have $3,000 income and $3,000 goes to pay bills, you have NO disposable income. Get it?
Quit arguing with me on every point I make. I DO NOT do that to you. Only when you don’t make sense, so I understand why it seems like every post to you.
And Ilikeinsurance – he has so many thumbs up right after his posts because he puts them there all by himself. That is also why Ron’s, txmouthbreatherboogereatertx’s, and my posts are all thumbed down into oblivion. Good job, Agent.
Libby, your nose is getting longer by the minute. You not only argue with me on every post I make, but horn in on any post I make with another commenter. In fact, you lead the league in horning in to put your hateful leftist comments in. By the way, the government is very good at taking our disposable income and spending it unwisely. People would like to have more disposable income, but don’t have it. I saw an article today that up to 1/3 of Americans have no retirement savings at all. That is an amazing statistic.
Oh, Agent. Still trying to insinuate that I lie? Pitiful. I don’t argue on every single point. That’s an exaggeration and you know it. Now who’s nose is growing?
As far as “horning in” goes, this is a blog. It is not intended for intimate, one-on-one conversation. I do not “horn in” but post my two cents worth which I am entitled to do so you can then thumb it down into oblivion. LOL!
Good point Libby. While there’s a large number of people against the use of credit data for underwriting & pricing, my guess is that a majority will admit there is some validity to the credit/price relationship. The real issue may be more of fairness and/or accuracy of credit data. Can you imagine if the industry just discovered the male/female underwriting variable and rolled this out in 2014. We’d have a huge pushback from the LGBT community.
Agent had this problem when he tried to marry his Ronnie blow up doll. He tried to put all his debt in Ronnie Doll’s name so he could live off the grid for a bit while he “found himself”. It brings a whole new meaning to “putting it on plastic”.
In case the posters on this article didn’t notice it, here is what happened January 1st, 2014
Top Medicare Tax went from 1.45% to 2.35%
Top Income Tax bracket went from 35% to 39.6%
Top Income Payroll Tax went from 37.4% to 52.2%
Capital Gains tax went from 15% to 28%
Dividends tax went from 15% to 39.6%
Estate Tax went from 0% to 55%
All of this as a result of Obamacare passed by Democrats with no bi-partisan support.
Good, now we can start paying on the “Murrican Express” balance we have. If Texico would have a colony tax, they could pay for their own things, and the United States could use the revenue it uses to support Texico to pay down the rest of the debt out there. Then we could lower federal taxes. That is unless we can prevent Texicans from starting more wars.
Are you saying that, if someon inherits $10,000, they will have to pay a 55% tax on it? I don’t think so.
The top income tax bracket went back to where it was supposed to be. The reduction to 35% under the temporary “Bush tax cuts” was intended to be exactly that – temporary. Obama extended these cuts for years (you should be thankful to Obama – he gave you more than you were supposed to get), and finally let some of the temporary cuts to expire, which was supposed to happen several years ago. The temporary tax cuts were irresponsible in the first place, and the only people who really benefitted from them were the rich. Working people only saved a few bucks. As a result of the irresponsible tax cuts to benefit the wealthy, we went from a surplus to a huge debt, and still a crumbling infrastruture.
When you have a surplus, that should be used for infrastructure, and some of it saved in case you get into a war or two. The rich don’t go out to fight (they leave peril to the poor); the least they can do is pay for it. Our military protects our country, and the rich have the most at risk. In other words they have the highest levels of coverage – does that ring a bell? Shouldn’t someone with a higher level of coverage pay a higher rate?
Are you saying that we’re all going to pay 39.6% on all dividends and 28% on all capital gains? Besides, why should people have to pay a higher rate on money they work for than they do on money they do not work for. Dividends and capital gains are free handouts. You don’t work for that money; it even accrues while you’re in bed asleep.
Overall, it looks like all of the points you made aren’t a problem for most of us regular folks. These things mostly affect people who have been fleecing this country for decades.
“Dividends and capital gains are free handouts”? You need an accounting lesson.
Let’s see it.
The increase in capital gains doesn’t apply to the first $250,000 in capital gains. I think when you earn over $250k in capital gains in one year, you can pay a little extra on the gravy.
But way to go to misrepresent the truth, Agent. Or should I call you Pinnochio?
In addition, 5,340,000 for estates of persons dying in 2014 can be given by an individual, before and/or upon their death, without incurring federal gift or estate taxes.
I don’t know about you, but I don’t know anyone with an estate over $5.34M. Let alone one that’s leaving it to me.
Again, misrepresent the truth all you want Agent. It’s the same as lying.
That’s what the tea party does. They get the ignorant masses all riled up about some tax increase that won’t even affect them. Then the billionaires and multi-millionaires in charge can get these people to act against their own best interests. For instance, if Richboy pays less in taxes, then our water bills go up, to make up for the lack of funds. The only thing the leaders have to do is include the word “God” or the word “Jesus” in their speech, and suckers will believe anything they’re told.
Speaking of ignorant masses getting riled up, how about Eric Holder, Al Sharpton & Jesse Jackson up there in Missouri riling up the protestors. There may be a full fledged South Central riot soon, especially after another shooting a mile away as a young black was holding up another convenience store with a knife, charged Police and then was shot. Suicide by cop is an apt term for it. The country is rapidly descending to be out of control and race baiters are responsible for much of it.
It’s called Civil Rights Opie. In the US cops wear badges and uniforms that symbolize the “Constitution”, or at least that what they pageantry says it does, which also means there is more expected from them. Same goes for any uniformed employee. I understand in Texico, your cops either wear 10 gallon hats, spurs, and ride horses, or just hooded bed sheets.
Why couldn’t the cop have shot the guy in the leg to take him down? Isn’t he trained to be an accurate shot? Why did he have to unload his weapon on the guy and kill him? Seems like they’re kill happy in Missouri. Maybe they should merge with Texico.
Agent says:
I think Shawnta should get at least 20 for this offense along with her co-conspirators. They endangered lives with this staging scheme and looked to reap the rewards.
Yes, we know Brown was just a lovable bear of a kid. He just came from a strong armed robbery of a convenience store. Had the confrontation with the cop, slugged the cop breaking the orbital bone of his eye and then tried for the gun. We know this is all Police brutality, right? It will be interesting to see how the facts come out. I am not sure where they will find a jury in the State of Missouri to hear this case since it has been sensationalized by the media, we have Holder the ultimate racist along with Sharpton and Jackson on the scene to stoke the racist fires even more.
There you go again with half truths and down-right lies. The kid was shot 6 times, some in the back, and he was totally unarmed. The cop only stopped him because he was walking in the middle of the road. He didn’t know anything about the robbery of $48 worth of cheap cigars.
And besides, my comment was about the 2nd shooting – not this one. The guy had a knife. The cop could have just taken him down with a shot to the leg. He didn’t have to empty his gun into him.
But since you are from Texas, where the execute innocent black men all the time, I can see where you are all for this type of police “justice.”
Since when is the sentence for petty robbery and walking in the middle of the street death?
Libby, you need to stop watching Moveon.org, Media Matters or MSNBC and find out the real news. Autopsy now says no shots in the back. The cop was attacked and slugged causing his injury and 12 witnesses confirmed the Police version. Before you start assuming the leftists are telling the truth, let’s let the facts of the case play out. You are just like your crowd, convicting a cop before he is even charged. On the second guy, he would have cut the officers throat in a heartbeat had he been allowed to. Shooting someone in the leg doesn’t always stop them. The movies are not real life.
Agent – once again you’re full of shit. Results of the autopsy haven’t been released to the public yet. They just went over to the prosecutor’s office on Monday.
Why don’t you get YOUR facts straight before talking out-yur ass.
So here we are 7 months later after a thorough investigation locally and by the Justice Dept and the officer was cleared of wrongdoing and the “Hands up, don’t shoot” crowd was completely wrong. Where does he go to get his reputation back? Race baiters like Sharpton, Jackson and Holder are a scourge on our society.
Opie,
We all know no matter what happens, the outcome will be in favor of the cop. Even if the cop is found guilty he will not face the punishment that would fit. He will probably still be able to own and conceal a penis replacement. Your two pipe must be as wide as a mason jar from all that “service” you do for the uniform. As a point to your jury comment, I’m not sure where they will find a judge in that will be capable of non bias. Word is on the street, the current judge and his family have generations of tax payer funded “authority” positions.
JUST LEAVE THE COMMENTS ALONE, AGENT. YOUR INCESSANT THUMBING IS REALLY GETTING IRRITATING.
The more we make him thumb comments down, the more we take time away from managing his firecracker stand, the best firecracker stand in all of West, Texico. Thus we can bankrupt him and the looting will continue in the Wild Middle East of North American.
Well, I’m taking a break from IJ. This censoring is childish and irritating. I don’t want to have to open up comments to see what was said in order to comment.
Agent, have fun playing with yourself from now on you immature jerk. It doesn’t appear you have anything better to do with yourself.
I agree. I think I’m going to change my name and get a fresh start. After all the accusations of me stealing his “moniker”, I think I will change my name to Agent. I just hope I don’t get a bunch of emails from those asking when they can get their back rub they were promised by the original Agent.
“Where’s the newspaper boy, sure hope he brings me some good news.”
Make sure it has knuckledragger in it do I’ll know it’s you.