“much-needed protection against an unfair, unreliable, and discriminatory rate-setting practice”
Unpopular, yes, but the correlation exists and one can not deny this. It just means all of will have to pay more than the rest of the country, plain and simple. the people have spoken.
Common sense. If you are in financial trouble, the hieracrchy of needs sets in. Food, rent, medicine, phone and other necessities of life will take priority over the brake job that you can squeeze a few more miles out. That increases the risk and therefore needs to be contemplated. It is not fair but is it more fair to make people pay higher premiums to subsidize those that are a greater risk? I guess so in MA.
It’s becoming less attractive to work hard and keep a good credit score it seems. First, you can’t base insurance rates on insurance scores, next, you can’t deny low interest loans to people with poor credit.
One thing that gets me, it’s ok to charge different rates for some things that a driver can not control (a driver’s sex comes to mind), but for something like an insurance score, which people have some control over, MA determines that it is wrong to allow that effect the rates.
@Some Insurance Guy, in Massachusetts they are not allowed to charge different auto rates based on gender, age, occupation, ect. In MA they use length of time one has had their license in place of age as a rating factor. For better or worse, MA auto insurance gives more weight the driver experience (lenght of time licensed, driving record) than just about anywhere else.
to some insurance guy, You can control your driving habits, and now in MA we will mainly be charged based on that. You can control your credit to a degree, you cant control a lay off, not being able to refinance because your owe more than the house is worth. these will impact your credit, so to say you can control your credit score is not entirely accurate.
The absence of one rating variable is not sufficient to make the statement that all Massachusetts drivers will pay more than the rest of the country. Some MA drivers will pay more than they would have with credit scoring. Others will pay less.
And really, if it was the condition of your car that was driving loss experience, then actuaries would likely use the condition of your car as a rating variable – not credit.
Not to dispute the validity of credit as a predictor of losses. The difficulty is that it’s just a proxy for something else which is causing losses, but actuaries are having a hard time determining what that something else is (though they’ve certainly been trying). The best hypothesis that I’ve read is that it might be a proxy for an individual’s risk tolerance. People who are more comfortable taking risks may tend to have that reflected in both their financial status and their driving experience. And risk tolerance would be hard to build directly into a rating model.
(Although how fun would that be? Along with your auto insurance application you would have to submit to a psychological profile.)
GL Guru is right – a correlation is well proven. Everyone agrees that you don’t want to pay the same as someone with a DWI, CNI, AFA but not using credit does exactly that. It increases the amount that a normal person pays, while subsidizing riskier drivers.
Facts are facts and the relation between credit and claims is FACT!
Just one teensy question: If credit profile has been proven to be a major contributing factor in determining loss potential, why hasn’t it been presented to the world as the 9th wonder and the indisputible ‘proof’ available for all to examine? I have been waiting for just such an announcement ever since I heard about credit profiling for use as an underwriting/rating tool. I my opinion, congratulations to MA for being able to stand up and tell the country ‘the king has no clothes’. I do not deny it has been stated over and over ‘the correlation exists’. I question the validity of the relationship credit profiling has to loss potential and I want to see the proof for myself instead of believing it ‘because everyone knows it is so’.
Apparently,
You would rather stick your head in a hole than read about it. It has been posted for you, you can read about it on the Texas DOI website…extensively. The data has been vetted by multiple states and mathematical experts. Its not the 9th wonder but if it makes a diffference $25 or $50 to my bill…I WANT IT!
My guess is you sell a lot of Non-Standard Auto and want to be able to sell subsidized policies ….toooooo bad!
I apologize folks, but I don’t buy the oft referred to ‘Texas studies’. My cardiac doctor can take an extremely complicated item and explain it to me in terms I can easily understand. In my book that is the mark of a true intelligent professional who knows what he is doing. Has anyone done this with credit profiling? States are legislating against using it. This is important. So where (I ask again) is the proof? Where is the analysis done by a competent impartial entity that any individual can access and understand if this is such a wonderful tool for loss prediction/underwriting/rating? I rest my case. I have been using credit profiling since it came into use in NY, but I don’t have to blindly accept its validity and will continue to ask for the proof until I receive it. The rest of you can believe whatever you want sans evidence and keep raving about how beautiful the king’s clothes are. Is my stance unpopular? You bet. Call me all the names you want, I’ve been in P&C for 40 years and I can take it so bring it on. Regards,
I have seen proprietary rating studies for other lines of busines, commercial auto, cgl, wc, disability and others that have shown that when a company’s financial strength decreases, losses have increased shortly thereafter.
I have personnaly had friends and family put off important maintenance (tire replacement, brake jobs) or they to do it themselves to save a buck (and do a poor job at it).
Matchoo: Insurance companies want to use it because they can. Here’s my theory on this; investment revenues are in the cellar. Without filing for rate increases, how does a carrier get more revenue? Tweak the tiering and move those with low credit profile to a higher premium tier. Start using property claims to tier auto and vice versa. No state rating approval needed. Tweaks go on in tiering all of the time. Proprietary is the answer. Tiering is the magic bullet for Personal Lines carriers today.
GL Guru: Commercial has been underwritten using financial status for decades. Tiering will come to commercial – just wait a bit. Then commercial policies will be tiered to higher premiums based on credit profile just as personal is. I predict tiering is coming to commercial insurance very soon – probably during/with the end of the soft commercial market.
Sorry darnovak, but your theory doesn’t come close to holding water. Maybe some facts would help.
Fact #1: In almost all states, all tiering criteria and changes to those criteria must be filed.
Fact #2: Far more people get rate decreases due to credit scoring than get rate increases.
So you’re wrong. But even if your theory were possible, it wouldn’t make any sense in a competitive market (and P&C insurance definitely qualifies as a competitive market, with an average of around 200 auto competitors per state). If credit wasn’t valid, a company could make a truckload of profit writing customers with poor credit at neutral rates. If that was possible, don’t you think someone would be doing it? (Hint: they’re not.)
You can make a decent argument that credit shouldn’t be used for public policy reasons, but claiming it isn’t predictive at this point is just sticking your head in the sand.
Tiering has been in commercial for a while if we are talking about the same thing. The analytics used now are even more robust than a couple of years ago.
Dar makes the same incomprehensible argument on this board every time the subject of credit scoring comes up, without ever explaining what it is that is lacking in the studies of credit scores that have been conducted thus far. If there weren’t something to it, why on earth would insurance companies a: pay for the credit score info and b: lobby so hard for it to be allowed to be used? As usual I expect that we will hear nothing further from Dar now that this question has been posed.
Incidentally, I used to work for a very large P&C insurer studying, among other things, the relationship between credit scores and claims experience for personal auto (in MA, in fact), and there was a very strong relationship, over and above other predictors such as age, gender and driving experience.
“much-needed protection against an unfair, unreliable, and discriminatory rate-setting practice”
Unpopular, yes, but the correlation exists and one can not deny this. It just means all of will have to pay more than the rest of the country, plain and simple. the people have spoken.
Common sense. If you are in financial trouble, the hieracrchy of needs sets in. Food, rent, medicine, phone and other necessities of life will take priority over the brake job that you can squeeze a few more miles out. That increases the risk and therefore needs to be contemplated. It is not fair but is it more fair to make people pay higher premiums to subsidize those that are a greater risk? I guess so in MA.
It’s becoming less attractive to work hard and keep a good credit score it seems. First, you can’t base insurance rates on insurance scores, next, you can’t deny low interest loans to people with poor credit.
One thing that gets me, it’s ok to charge different rates for some things that a driver can not control (a driver’s sex comes to mind), but for something like an insurance score, which people have some control over, MA determines that it is wrong to allow that effect the rates.
SIG, Just before the housing bust “Mad Max” (Maxine Waters D-CA)was pushing for just that.
@Some Insurance Guy, in Massachusetts they are not allowed to charge different auto rates based on gender, age, occupation, ect. In MA they use length of time one has had their license in place of age as a rating factor. For better or worse, MA auto insurance gives more weight the driver experience (lenght of time licensed, driving record) than just about anywhere else.
to some insurance guy, You can control your driving habits, and now in MA we will mainly be charged based on that. You can control your credit to a degree, you cant control a lay off, not being able to refinance because your owe more than the house is worth. these will impact your credit, so to say you can control your credit score is not entirely accurate.
The absence of one rating variable is not sufficient to make the statement that all Massachusetts drivers will pay more than the rest of the country. Some MA drivers will pay more than they would have with credit scoring. Others will pay less.
And really, if it was the condition of your car that was driving loss experience, then actuaries would likely use the condition of your car as a rating variable – not credit.
Not to dispute the validity of credit as a predictor of losses. The difficulty is that it’s just a proxy for something else which is causing losses, but actuaries are having a hard time determining what that something else is (though they’ve certainly been trying). The best hypothesis that I’ve read is that it might be a proxy for an individual’s risk tolerance. People who are more comfortable taking risks may tend to have that reflected in both their financial status and their driving experience. And risk tolerance would be hard to build directly into a rating model.
(Although how fun would that be? Along with your auto insurance application you would have to submit to a psychological profile.)
GL Guru is right – a correlation is well proven. Everyone agrees that you don’t want to pay the same as someone with a DWI, CNI, AFA but not using credit does exactly that. It increases the amount that a normal person pays, while subsidizing riskier drivers.
Facts are facts and the relation between credit and claims is FACT!
Insurers can already price for driving infractions. They don’t need credit scoring to do that.
Just one teensy question: If credit profile has been proven to be a major contributing factor in determining loss potential, why hasn’t it been presented to the world as the 9th wonder and the indisputible ‘proof’ available for all to examine? I have been waiting for just such an announcement ever since I heard about credit profiling for use as an underwriting/rating tool. I my opinion, congratulations to MA for being able to stand up and tell the country ‘the king has no clothes’. I do not deny it has been stated over and over ‘the correlation exists’. I question the validity of the relationship credit profiling has to loss potential and I want to see the proof for myself instead of believing it ‘because everyone knows it is so’.
Apparently,
You would rather stick your head in a hole than read about it. It has been posted for you, you can read about it on the Texas DOI website…extensively. The data has been vetted by multiple states and mathematical experts. Its not the 9th wonder but if it makes a diffference $25 or $50 to my bill…I WANT IT!
My guess is you sell a lot of Non-Standard Auto and want to be able to sell subsidized policies ….toooooo bad!
Are you sure that you’re not paying $25 more?
You’re probably also a holocaust denier…
I apologize folks, but I don’t buy the oft referred to ‘Texas studies’. My cardiac doctor can take an extremely complicated item and explain it to me in terms I can easily understand. In my book that is the mark of a true intelligent professional who knows what he is doing. Has anyone done this with credit profiling? States are legislating against using it. This is important. So where (I ask again) is the proof? Where is the analysis done by a competent impartial entity that any individual can access and understand if this is such a wonderful tool for loss prediction/underwriting/rating? I rest my case. I have been using credit profiling since it came into use in NY, but I don’t have to blindly accept its validity and will continue to ask for the proof until I receive it. The rest of you can believe whatever you want sans evidence and keep raving about how beautiful the king’s clothes are. Is my stance unpopular? You bet. Call me all the names you want, I’ve been in P&C for 40 years and I can take it so bring it on. Regards,
Exactly why do you think insurance companies want to use it?
You should read about confirmation bias, at the risk that it won’t support what you already believe…
I have seen proprietary rating studies for other lines of busines, commercial auto, cgl, wc, disability and others that have shown that when a company’s financial strength decreases, losses have increased shortly thereafter.
I have personnaly had friends and family put off important maintenance (tire replacement, brake jobs) or they to do it themselves to save a buck (and do a poor job at it).
It is what it is.
Matchoo: Insurance companies want to use it because they can. Here’s my theory on this; investment revenues are in the cellar. Without filing for rate increases, how does a carrier get more revenue? Tweak the tiering and move those with low credit profile to a higher premium tier. Start using property claims to tier auto and vice versa. No state rating approval needed. Tweaks go on in tiering all of the time. Proprietary is the answer. Tiering is the magic bullet for Personal Lines carriers today.
GL Guru: Commercial has been underwritten using financial status for decades. Tiering will come to commercial – just wait a bit. Then commercial policies will be tiered to higher premiums based on credit profile just as personal is. I predict tiering is coming to commercial insurance very soon – probably during/with the end of the soft commercial market.
Sorry darnovak, but your theory doesn’t come close to holding water. Maybe some facts would help.
Fact #1: In almost all states, all tiering criteria and changes to those criteria must be filed.
Fact #2: Far more people get rate decreases due to credit scoring than get rate increases.
So you’re wrong. But even if your theory were possible, it wouldn’t make any sense in a competitive market (and P&C insurance definitely qualifies as a competitive market, with an average of around 200 auto competitors per state). If credit wasn’t valid, a company could make a truckload of profit writing customers with poor credit at neutral rates. If that was possible, don’t you think someone would be doing it? (Hint: they’re not.)
You can make a decent argument that credit shouldn’t be used for public policy reasons, but claiming it isn’t predictive at this point is just sticking your head in the sand.
Tiering has been in commercial for a while if we are talking about the same thing. The analytics used now are even more robust than a couple of years ago.
The soft market is over.
Dar makes the same incomprehensible argument on this board every time the subject of credit scoring comes up, without ever explaining what it is that is lacking in the studies of credit scores that have been conducted thus far. If there weren’t something to it, why on earth would insurance companies a: pay for the credit score info and b: lobby so hard for it to be allowed to be used? As usual I expect that we will hear nothing further from Dar now that this question has been posed.
Incidentally, I used to work for a very large P&C insurer studying, among other things, the relationship between credit scores and claims experience for personal auto (in MA, in fact), and there was a very strong relationship, over and above other predictors such as age, gender and driving experience.