This should apply in ALL States of the Union, especially in the economic climate that we are experiencing. People are down and out and the insurance companies add penalties for bad credit……what happened to “JUSTICE FOR ALL”?
Think of the inverse; How is it JUSTICE for the person with a higher insurance score (most companies don’t use pure credit scores) to pay the same as somebody, and this is key, statistically proven to be a higher risk for loss? Do you feel the same about all of the other rating variables? Certainly it’s not justice that younger drivers pay more than experienced drivers, right?
Matt, you fail to take into account the other variables such as territory, age of driver, driving record, type of vehicle, and claims history. You really simplify too much especially in economic times like today. I think you’ll find less and less correlation in new credit models.
That said, I’m not going to have a debate about any type of underwriting criteria in a Mass. auto story. They’re lucky to have competition in the market after years of price fixed madness.
I think they negotiated pretty well with the state. I would have thought it would be in the millions. Perhaps they thought they could skirt around the credit issue and got caught. Other states should do the same. In this economy, millions of consumers credit scores are not what they used to be and companies are charging more on renewals and new business at a time when people just can’t afford higher rates.
This is a common fallacy. Credit score has a very loose, if any, correlation with income. Some of the seemingly wealthiest people are highly leveraged and have poor credit as a result. Financial irresponsibility is found at all income levels.
You’ve fallen on your head Matt. While some upper income earners have bad credit, the vast majority of bad credit folks live under the median income for their area. These are facts that even the actuaries will admit to.
If what you’re saying is true AND these folks are shown to have a higher propensity for loss then why is the use of credit an issue? I would argue it’s one of the most fair rating variables because the customer has direct influence over the score. I was born a male and my years of driving experience are what they are. However, I have great influence over my finances and credit score.
It IS true AND these folks often live in territories that are already rated as adverse by the insurance carrier. It’s a double whammy. It’s like saying all criminals eat bread therefore if you eat bread you’re a criminal. Correlation can be shown on just about anything.
December 13, 2011 at 3:49 pm
Rich says:
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Ironically, the state is making Progressive contact affected consumers and offer a free check of their credit report. Insurance credit scoring inquiries DON’T show in the public inquiry section of the report. It’s what’s known as a “soft hit” that does not affect score and is not visible to third parties pulling credit on that individual. The ONLY person that would ever see the inquiry is the consumer by pulling their own report. I’m not a proponent of credit scoring either but sometimes legislators to more based on public image than public interest. Credit scoring is here to stay, unless the people say differently and have a few politicians in their back pocket to back it up. That’s just my opinion.
According to the article Progressive did not use the credit score “in calculating rates for Massachusetts consumers.” Massachusetts is fining Progressive for mistakenly saying that they were using the credit score for rating. Maybe this did scare off some customers with bad credit, but it is not the same as using the credit score in the rating.
Agreed, you understand correctly. And what if that same Massachusetts customer stumbles across the New York portion of the site where credit is used? Are they going to fine Progressive again? Are they going to block the regular Progressive site from Massachusetts customers and have a special site dedicated to them? A joke.
This fine makes no sense. With regards to the validity of credit scoring, everyone has an opinion but I don’t see the data to support the opinions. Until I see a carrier step-up and completely eliminate the use of credit scoring AND compete (from a rate perspective) with the major auto writers, then I have to assume there must be a correlation between risk characteristics and credit score. If there wasn’t, some company would advertise like heck that “you can save 16% or more and we’ll NEVER check you’re credit”. That would have to be an attention grabber.
This is an area where I have a bit of knowledge as I wrote my thesis on the subject. If few carriers check credit then no carrier needs it as an underwriting tool and can still be profitable. If a lot of carriers check credit then MOST will need to use it as an underwriting tool to remain profitable. You start to get only the credit adverse who are likely the less profitable customers who select lower limits. Because other carriers who are checking credit are so heavily discounting the “best risk” you only get the remainder and so on and so on leaving you with just the low limit, bad territory customers. In 13 years I’ve not been able to see a direct credit only correlation in auto losses. Territory, age, driving record, and claims history have been in my experience, have been much better at determining future claims.
It’s only a factor when combined with prudent underwriting factors. Removed from those factors it’s meaningless. Therefore it’s my opinion that credit is not a proper underwriting factor.
December 13, 2011 at 4:20 pm
John Gardner says:
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Typical politician. It is just hilarious that in a state with the ridiculous history that Mass has that they would fine a company for a link on a website that did not even apply to the policy holders. I expect nothing less than theft from politicians.
Many of the new companies in MA are getting around the “credit scoring” issue by requiring a “supplemental” application along with the standard application. The “supplement” asks about home ownership, do you have house/renters insurance, length of time at the location, commute or business use, do you have roadside assistance, do you have an installed Bluetooth,good grades, etc (some questions duplicate the app questions) but that seems to be flying under the radar of the regulators.
When you buy a car, credit checked; banks make a loan, credit checked. The statistics are there to prove insurance scoring works. Sick and tired of everyone having to be “equal”. I wasn’t given anything; I had to work for what I have and my credit score is good. It can be done!
Not equal but fair. Typically your best credit risk is also your best territory risk which is your best upper limits risk for bodily injury which is your risk that files fewer claims and so on and so forth. Therefore it is likely that credit is not as big of a factor as companies make it out to be. If you take credit out of the mix you’ll find that the upper BI customers in the best territory with the best claims records are still the customers you want to chase.
Did you ever hear of multi-variate analysis? It allows you to measure the additional predictivness of each additional variable. Even when used in conjuntion with your other varibles, BI Limit, territory, claims…credit score still has considerable value in predicting the propensity for future loss. That isn’t a hunch, it is easily measurable.
Yeah, for someone who claims to have written a thesis on the topic, Mr. Solvent is shockingly ignorant of the basics of the issue. The predictiveness of insurance scoring with regard to future claim activity is well established.
I’m actually not a big fan of insurance scoring, but from a public policy point of view, not a statistical one. Mr. Solvent’s criticisms of scoring belie an understanding of the topic.
Credit score has absolutely zero to do with auto claims. Financial responsibility has nothing to to with driving responsibility (unless you are speeding to the post office to pay a bill). You can just as easily get cut-off or rear-ended by a person with excellent credit or poor credit. Experience / age / use & territory are the critical factors (notice I left off sex). The companies add a dozen or more “price points” primarily to add premium, not discount it.
I believe the companies look at credit score has a lot to do with auto claims and home claims. They believe if a insured has bad credit they would most likely be the ones to turn in a false claim. I think they’ve learned to play the system. Doesn’t always work for them but they try it anyways, especially around Xmas time.
Also, on another note, has anyone noticed that when rating a progressive policy they seem to know what the year, make and model of the cars are in your household, before you put the VIN in?
That actually comes from a database most of the major carriers use in conjuntion with the CLUE system. It pulls information on autos that may have been insured or are insured in your name along with driver info that pulls up for the same address.
I’ve seen the same under the Nationwide/Victoria/Titan site. There they call it “acceleRATE”. Most programs like this pull information from Public Records and publicly available information.
This should apply in ALL States of the Union, especially in the economic climate that we are experiencing. People are down and out and the insurance companies add penalties for bad credit……what happened to “JUSTICE FOR ALL”?
Exactly! THANK you, Longtime… (-:
Think of the inverse; How is it JUSTICE for the person with a higher insurance score (most companies don’t use pure credit scores) to pay the same as somebody, and this is key, statistically proven to be a higher risk for loss? Do you feel the same about all of the other rating variables? Certainly it’s not justice that younger drivers pay more than experienced drivers, right?
Matt, you fail to take into account the other variables such as territory, age of driver, driving record, type of vehicle, and claims history. You really simplify too much especially in economic times like today. I think you’ll find less and less correlation in new credit models.
That said, I’m not going to have a debate about any type of underwriting criteria in a Mass. auto story. They’re lucky to have competition in the market after years of price fixed madness.
$125K sounds like a drop in the bucket to a company like Progressive…. so much for doing their homework.
I think they negotiated pretty well with the state. I would have thought it would be in the millions. Perhaps they thought they could skirt around the credit issue and got caught. Other states should do the same. In this economy, millions of consumers credit scores are not what they used to be and companies are charging more on renewals and new business at a time when people just can’t afford higher rates.
This is a common fallacy. Credit score has a very loose, if any, correlation with income. Some of the seemingly wealthiest people are highly leveraged and have poor credit as a result. Financial irresponsibility is found at all income levels.
You’ve fallen on your head Matt. While some upper income earners have bad credit, the vast majority of bad credit folks live under the median income for their area. These are facts that even the actuaries will admit to.
If what you’re saying is true AND these folks are shown to have a higher propensity for loss then why is the use of credit an issue? I would argue it’s one of the most fair rating variables because the customer has direct influence over the score. I was born a male and my years of driving experience are what they are. However, I have great influence over my finances and credit score.
It IS true AND these folks often live in territories that are already rated as adverse by the insurance carrier. It’s a double whammy. It’s like saying all criminals eat bread therefore if you eat bread you’re a criminal. Correlation can be shown on just about anything.
Ironically, the state is making Progressive contact affected consumers and offer a free check of their credit report. Insurance credit scoring inquiries DON’T show in the public inquiry section of the report. It’s what’s known as a “soft hit” that does not affect score and is not visible to third parties pulling credit on that individual. The ONLY person that would ever see the inquiry is the consumer by pulling their own report. I’m not a proponent of credit scoring either but sometimes legislators to more based on public image than public interest. Credit scoring is here to stay, unless the people say differently and have a few politicians in their back pocket to back it up. That’s just my opinion.
According to the article Progressive did not use the credit score “in calculating rates for Massachusetts consumers.” Massachusetts is fining Progressive for mistakenly saying that they were using the credit score for rating. Maybe this did scare off some customers with bad credit, but it is not the same as using the credit score in the rating.
Agreed, you understand correctly. And what if that same Massachusetts customer stumbles across the New York portion of the site where credit is used? Are they going to fine Progressive again? Are they going to block the regular Progressive site from Massachusetts customers and have a special site dedicated to them? A joke.
This fine makes no sense. With regards to the validity of credit scoring, everyone has an opinion but I don’t see the data to support the opinions. Until I see a carrier step-up and completely eliminate the use of credit scoring AND compete (from a rate perspective) with the major auto writers, then I have to assume there must be a correlation between risk characteristics and credit score. If there wasn’t, some company would advertise like heck that “you can save 16% or more and we’ll NEVER check you’re credit”. That would have to be an attention grabber.
This is an area where I have a bit of knowledge as I wrote my thesis on the subject. If few carriers check credit then no carrier needs it as an underwriting tool and can still be profitable. If a lot of carriers check credit then MOST will need to use it as an underwriting tool to remain profitable. You start to get only the credit adverse who are likely the less profitable customers who select lower limits. Because other carriers who are checking credit are so heavily discounting the “best risk” you only get the remainder and so on and so on leaving you with just the low limit, bad territory customers. In 13 years I’ve not been able to see a direct credit only correlation in auto losses. Territory, age, driving record, and claims history have been in my experience, have been much better at determining future claims.
Didn’t write a thesis on it, just worked for a carrier for 17 years and reviewed actual data. I think you just made the point – it’s a factor.
It’s only a factor when combined with prudent underwriting factors. Removed from those factors it’s meaningless. Therefore it’s my opinion that credit is not a proper underwriting factor.
Typical politician. It is just hilarious that in a state with the ridiculous history that Mass has that they would fine a company for a link on a website that did not even apply to the policy holders. I expect nothing less than theft from politicians.
Many of the new companies in MA are getting around the “credit scoring” issue by requiring a “supplemental” application along with the standard application. The “supplement” asks about home ownership, do you have house/renters insurance, length of time at the location, commute or business use, do you have roadside assistance, do you have an installed Bluetooth,good grades, etc (some questions duplicate the app questions) but that seems to be flying under the radar of the regulators.
When you buy a car, credit checked; banks make a loan, credit checked. The statistics are there to prove insurance scoring works. Sick and tired of everyone having to be “equal”. I wasn’t given anything; I had to work for what I have and my credit score is good. It can be done!
Not equal but fair. Typically your best credit risk is also your best territory risk which is your best upper limits risk for bodily injury which is your risk that files fewer claims and so on and so forth. Therefore it is likely that credit is not as big of a factor as companies make it out to be. If you take credit out of the mix you’ll find that the upper BI customers in the best territory with the best claims records are still the customers you want to chase.
Did you ever hear of multi-variate analysis? It allows you to measure the additional predictivness of each additional variable. Even when used in conjuntion with your other varibles, BI Limit, territory, claims…credit score still has considerable value in predicting the propensity for future loss. That isn’t a hunch, it is easily measurable.
Yeah, for someone who claims to have written a thesis on the topic, Mr. Solvent is shockingly ignorant of the basics of the issue. The predictiveness of insurance scoring with regard to future claim activity is well established.
I’m actually not a big fan of insurance scoring, but from a public policy point of view, not a statistical one. Mr. Solvent’s criticisms of scoring belie an understanding of the topic.
Credit score has absolutely zero to do with auto claims. Financial responsibility has nothing to to with driving responsibility (unless you are speeding to the post office to pay a bill). You can just as easily get cut-off or rear-ended by a person with excellent credit or poor credit. Experience / age / use & territory are the critical factors (notice I left off sex). The companies add a dozen or more “price points” primarily to add premium, not discount it.
I believe the companies look at credit score has a lot to do with auto claims and home claims. They believe if a insured has bad credit they would most likely be the ones to turn in a false claim. I think they’ve learned to play the system. Doesn’t always work for them but they try it anyways, especially around Xmas time.
Also, on another note, has anyone noticed that when rating a progressive policy they seem to know what the year, make and model of the cars are in your household, before you put the VIN in?
Big brother is watching…..
That actually comes from a database most of the major carriers use in conjuntion with the CLUE system. It pulls information on autos that may have been insured or are insured in your name along with driver info that pulls up for the same address.
I’ve seen the same under the Nationwide/Victoria/Titan site. There they call it “acceleRATE”. Most programs like this pull information from Public Records and publicly available information.