I don’t understand the connection. Shouldn’t the policy be based on what type of service the insurer is providing. It seems to me credit history would have to do with a person’s ability to pay for the service of that policy.
I hope that the companies and legislators would look to protect individuals. Maybe the things they take in to consideration for these scores should be limited. It always appears to me that those who can afford it the least are the ones who are hurt the most. What about the poor older women who pays cash and has no credit. I think the burden should be put on the companies if they want to continue the practice of scoring. How about having them show that it really makes a difference?
It measures resonsibility. If you’re irresponsible then you’re going to have more claims. Irresponsible people also have problems usually with their finances.
Irresponsible people usually do have problems with their finances, but what about people who have extenuating circumstances(ie: divorce, extreme medical bills) who are normally responsible but just had a bad stint credit-wise? Should they be penalized for these types of circumstances? And if you have a poor credit score, the insurance premium is higher, and these people are the ones who can’t afford higher rates.
I have been licensed for P&C for over 30 years. I have yet to see any hard evidence of any “research” conducted in a competent manner over several years that shows current “low credit score” attributes are a direct cause of future losses. Was a group of consumers followed for 10 years or 20 years to make the determinations ? It seems to me like bogus “researchers” took a present day situation (claims) and looked backwards for a “common thread”. I am sure statistically one could use this “junk research” to prove with 90% certainty that folks with green eyes who wear wool
clothes will become axe murderers. Where’s the research ? Why isn’t it readily available for examination and criticism ? I smell “legal redlining”.
The CPCU Society published a study of this back in 1996:
The Role of Credit History Scoring in Personal Lines Insurance Underwriting
by Dale M. Halon, CPCU, CIC, Lamont D. Boyd, CPCU
“The role of underwriting is to review and assess risk factors and potential hazards. Moral and Morale Hazards and financial stability are risk factors that traditional underwriting tools do not identify for personal lines insurance. Consumer credit history, without regard to level of income, provides a look into these risk factors as predictors just as other underwriting tools provide information about the physical aspects of the risk. Additionally, empirical scoring of the attributes in consumer credit history reports provides an accurate, consistent, and objective measure that can be used in conjunction with other risk assessment tools. This broader view of risks can help insurers make personal insurance more available and possibly more affordable by identifying risk factors other than the physical characteristics of risk.”
Insurance credit scoring seems to be tweaked daily, weekly or monthly by carriers depending on how much new business they want at that point – kind of like turning the spigot. I do believe that old customers are treated worse than prospective new ones by most carriers, and that is plainly wrong. Re-scoring should be done regularly for all policyholders and lower rates offerred to all who qualify – not just select new policyholders.
Some points:
One can argue that Insurance Credit Scoring does, or does not, take into account race, income, location.
But the truth is that from the vast amount of data collected over the years, an algorithm can easily be created to identify to a great extent the ethnicity, income and, of course, location of an applicant for insurance or a loan.
So, it’s a no brainer that an algorithm can easily be devised to adversely affect (higher premiums, higher loan rates, etc.) certain groups of people that a company believes that, long term, will not be as profitable as other groups.
Profitable from an Insurance company standpoint: Stays with the company longer; More and larger policies (higher incomes = more cars, bigger homes, more “toys”); more likely to purchase Life/Financial products (this is a biggie! these products are extremely profitable) because of higher disposable income; Higher income means fewer claims because the insured(s) can afford to maintain the house and car properly; Can afford to “eat” many losses instead of filing claims.
Most of the posters here seem to think that only financially irresponsible people (those who don’t pay their bills on time and/or are in debt up to their eyeballs) are the ones who end up paying more for insurance using a Credit Scoring system.
Sorry, it doesn’t work that way.
An excellent credit history does not mean you will get the lowest insurance rate. You can be prudent in the use of credit, pay every bill “as agreed,” and never be late. And your driving record can be perfect. And, you may have a great FICO score for loan purposes.
But, guess what? That doesn’t mean you’ll get the lowest insurance rate. You have to have the exactly correct combination of credit cards, types of credit cards, limits on those cards, installment loans, on and on. In addition, the credit records are rife with errors.
What is the correct combination? Well, that’s a secret. And each company has their own secret combination and “point” system.
Since the rules of the game are secret, you cannot arrange your financial affairs in such a way to win the game. Also, companies change the rules as they wish for marketing purposes.
Too, though the companies say the credit scoring system predicts, long range, the probability of making a claim, your insurance credit score can change monthly! How does that equate with long range predictability?
Last, if you could arrange your affairs to get the best insurance rate, that could mean a lowering of your FICO score for a mortgage loan. The scoring is different.
The theory that everyone should pay insurance rates according to their risk, as defined by the insurers, if taken to its logical end, then you don’t have insurance.
These are social questions:
Are the less fortunate to be hammered, crushed by costs and rates they cannot afford, “kept in their place?”
Are Americans willing to be forced to divulge every speck of personal and financial information, subjected to secret and variable algorithms that decide their fate, to lenders, insurers, employers, landlords, etc.?
Are they willing to allow that confidential data to be shared with “affiliates,” sold to whoever and collected for resale? Did I say “confidential?” Confidential from whom?
Seems like almost anyone, for a fee, can get the data – or steal it. But if its “stolen,” you will have to bear the burden of fixing the problem – not the data collection companies.
This so-called confidential data resides in so many places, under some of the sloppiest security systems, that it’s the equivalent of storing nuclear warheads in National Guard armories.
I could go on, but the reader is probably already falling asleep from the length of this piece.
Earlier someone asked if there was a long term study done. The answer is yes. According to Choicepoint a group of consumers was scored and then their claims were kept track of for several years to predict the validity of the scores. Those with lower scores had a higher frequency of claims. It also does NOT discriminate against lower income individuals. It has been my experience that most of them have the same or better scores than those with higher incomes. Medical items are noted as medical on the reports and are not allowed to be figured into the scores in our state. I’m not sure if that’s true for all states though.
As I stated previously: “Where are these studies? How can I examine any of them?”
So and so says … what’s their name did a study umpteen years ago… actuaries state credit scoring a boon… all are “apeculation” and “theory” until the data is made available, examined, and pronounced as valid by competent, recognized “experts”. I have yet to see any research data made available to the public. When carriers state that for security reasons they cannot reveal their “scoring” formulae, the stench worsens.
Whatever happened to the scientific method?
I’d love to know what this “strong relationship” is. Merely because a relationship exists proves nothing. Most blad men are over 30 but age is NOT what determines baldness, and I suggest credit history does NOT predict how a person drives. I know literal millionaires who have TERRIBLE driving records.
I don’t understand the connection. Shouldn’t the policy be based on what type of service the insurer is providing. It seems to me credit history would have to do with a person’s ability to pay for the service of that policy.
I hope that the companies and legislators would look to protect individuals. Maybe the things they take in to consideration for these scores should be limited. It always appears to me that those who can afford it the least are the ones who are hurt the most. What about the poor older women who pays cash and has no credit. I think the burden should be put on the companies if they want to continue the practice of scoring. How about having them show that it really makes a difference?
Statisitcal analysis has proved without a shadow of a doubt that credit score correlates to loss histories.
It measures resonsibility. If you’re irresponsible then you’re going to have more claims. Irresponsible people also have problems usually with their finances.
Irresponsible people usually do have problems with their finances, but what about people who have extenuating circumstances(ie: divorce, extreme medical bills) who are normally responsible but just had a bad stint credit-wise? Should they be penalized for these types of circumstances? And if you have a poor credit score, the insurance premium is higher, and these people are the ones who can’t afford higher rates.
I have been licensed for P&C for over 30 years. I have yet to see any hard evidence of any “research” conducted in a competent manner over several years that shows current “low credit score” attributes are a direct cause of future losses. Was a group of consumers followed for 10 years or 20 years to make the determinations ? It seems to me like bogus “researchers” took a present day situation (claims) and looked backwards for a “common thread”. I am sure statistically one could use this “junk research” to prove with 90% certainty that folks with green eyes who wear wool
clothes will become axe murderers. Where’s the research ? Why isn’t it readily available for examination and criticism ? I smell “legal redlining”.
The Texas Department of Insurance has looked into this issue and concluded that there is a strong relationship between credit score and losses.
The study can be found at:
http://www.tdi.state.tx.us/commish/credit3.html
The CPCU Society published a study of this back in 1996:
The Role of Credit History Scoring in Personal Lines Insurance Underwriting
by Dale M. Halon, CPCU, CIC, Lamont D. Boyd, CPCU
“The role of underwriting is to review and assess risk factors and potential hazards. Moral and Morale Hazards and financial stability are risk factors that traditional underwriting tools do not identify for personal lines insurance. Consumer credit history, without regard to level of income, provides a look into these risk factors as predictors just as other underwriting tools provide information about the physical aspects of the risk. Additionally, empirical scoring of the attributes in consumer credit history reports provides an accurate, consistent, and objective measure that can be used in conjunction with other risk assessment tools. This broader view of risks can help insurers make personal insurance more available and possibly more affordable by identifying risk factors other than the physical characteristics of risk.”
https://webster.cpcusociety.org/source/pubs/show_journal_abstract.cfm?180
Insurance credit scoring seems to be tweaked daily, weekly or monthly by carriers depending on how much new business they want at that point – kind of like turning the spigot. I do believe that old customers are treated worse than prospective new ones by most carriers, and that is plainly wrong. Re-scoring should be done regularly for all policyholders and lower rates offerred to all who qualify – not just select new policyholders.
Some points:
One can argue that Insurance Credit Scoring does, or does not, take into account race, income, location.
But the truth is that from the vast amount of data collected over the years, an algorithm can easily be created to identify to a great extent the ethnicity, income and, of course, location of an applicant for insurance or a loan.
So, it’s a no brainer that an algorithm can easily be devised to adversely affect (higher premiums, higher loan rates, etc.) certain groups of people that a company believes that, long term, will not be as profitable as other groups.
Profitable from an Insurance company standpoint: Stays with the company longer; More and larger policies (higher incomes = more cars, bigger homes, more “toys”); more likely to purchase Life/Financial products (this is a biggie! these products are extremely profitable) because of higher disposable income; Higher income means fewer claims because the insured(s) can afford to maintain the house and car properly; Can afford to “eat” many losses instead of filing claims.
Most of the posters here seem to think that only financially irresponsible people (those who don’t pay their bills on time and/or are in debt up to their eyeballs) are the ones who end up paying more for insurance using a Credit Scoring system.
Sorry, it doesn’t work that way.
An excellent credit history does not mean you will get the lowest insurance rate. You can be prudent in the use of credit, pay every bill “as agreed,” and never be late. And your driving record can be perfect. And, you may have a great FICO score for loan purposes.
But, guess what? That doesn’t mean you’ll get the lowest insurance rate. You have to have the exactly correct combination of credit cards, types of credit cards, limits on those cards, installment loans, on and on. In addition, the credit records are rife with errors.
What is the correct combination? Well, that’s a secret. And each company has their own secret combination and “point” system.
Since the rules of the game are secret, you cannot arrange your financial affairs in such a way to win the game. Also, companies change the rules as they wish for marketing purposes.
Too, though the companies say the credit scoring system predicts, long range, the probability of making a claim, your insurance credit score can change monthly! How does that equate with long range predictability?
Last, if you could arrange your affairs to get the best insurance rate, that could mean a lowering of your FICO score for a mortgage loan. The scoring is different.
The theory that everyone should pay insurance rates according to their risk, as defined by the insurers, if taken to its logical end, then you don’t have insurance.
These are social questions:
Are the less fortunate to be hammered, crushed by costs and rates they cannot afford, “kept in their place?”
Are Americans willing to be forced to divulge every speck of personal and financial information, subjected to secret and variable algorithms that decide their fate, to lenders, insurers, employers, landlords, etc.?
Are they willing to allow that confidential data to be shared with “affiliates,” sold to whoever and collected for resale? Did I say “confidential?” Confidential from whom?
Seems like almost anyone, for a fee, can get the data – or steal it. But if its “stolen,” you will have to bear the burden of fixing the problem – not the data collection companies.
This so-called confidential data resides in so many places, under some of the sloppiest security systems, that it’s the equivalent of storing nuclear warheads in National Guard armories.
I could go on, but the reader is probably already falling asleep from the length of this piece.
Earlier someone asked if there was a long term study done. The answer is yes. According to Choicepoint a group of consumers was scored and then their claims were kept track of for several years to predict the validity of the scores. Those with lower scores had a higher frequency of claims. It also does NOT discriminate against lower income individuals. It has been my experience that most of them have the same or better scores than those with higher incomes. Medical items are noted as medical on the reports and are not allowed to be figured into the scores in our state. I’m not sure if that’s true for all states though.
As I stated previously: “Where are these studies? How can I examine any of them?”
So and so says … what’s their name did a study umpteen years ago… actuaries state credit scoring a boon… all are “apeculation” and “theory” until the data is made available, examined, and pronounced as valid by competent, recognized “experts”. I have yet to see any research data made available to the public. When carriers state that for security reasons they cannot reveal their “scoring” formulae, the stench worsens.
Whatever happened to the scientific method?
Darald did you not see the post right after yours? It had a link for you to click on. Did you bother to do that? Here it is again http://www.tdi.state.tx.us/commish/credit3.html
I’d love to know what this “strong relationship” is. Merely because a relationship exists proves nothing. Most blad men are over 30 but age is NOT what determines baldness, and I suggest credit history does NOT predict how a person drives. I know literal millionaires who have TERRIBLE driving records.