why should the insurance companies be punished if a large % of minorities happen to have bad credit?
your credit score is an indicator of risk and ability to pay.
I dont mind then using my credit score as a part of the process to determine if I am insurable, and what my premiums should be. It is the ONLY criteria they use.
This issue won’t die and you wonder if it will continue to be a hot topic as the housing market deteriorates and some credits scores deteriorate with it. The opponents to the use of credit always use the same arguement: 1) unfair to minorities, and 2) rich people don’t file claims, they pay them themselves.
The credit data when combined with other reliable data has been shown to be an accurate tool to predict future losses. Most importantly, as the credit scores worsen, the losses by line item increase. In other words, rich people aren’t paying their own BI & UM claims.
Does that mean that every person with bad credit will file a claim? No, just like it a means that every person with 4 speeding tickets won’t file a claim either. Just a predictor for the group, not the individual.
Quote honestly, insurance companies, through agent selection and marketing, have a better way to “red-line” than using credit scores.
Given the current attitude of “it’s not my fault” that prevails in our nation, I would suspect that if, today, an insurance company created a new underwriting variable called “gender”, there would be an uproar that this unfairly penalizes those who were born male or female. It would certainly start a debate on whether a gay or lesbian (“not that there is anything wrong with that”)deserves the male or female rate level.
I was agreeing with most everything until you had to throw the gay/lesbian bit in there. you really missed the “mark” on that one. there’s only a small % of people that consider themselves as transgendered. i guarantee you that a gay man does not consider himself female and a lesbian does not consider herself a man.
The quotes from Congressmen Watt and Gutierrez lead me to question whether they actually read the report, or if they understand what they read. The conclusions were clear: “credit-based insurance scores are effective predictors of risk under automobile insurance policies” and “scores have only a small effect as a “proxy” for membership in racial and ethnic groups estimating of insurance risk”. In other words, when controls for race were included in the predictive models, the results did not change. If you have any interest in this topic I suggest you google the report, its a good read.
I don’t see the big fuss. The report clears credit scores as being unbiased. I guess we could all just start going by randam numbers (SSN, drivers license, whatever) so there would be no way to determine race, gender or other protected class.
via e-mail “Hi, I’m 26439527. I would like to insure my 2005 Ford Taurus in Portland Maine.”
Good point. It is a small group but a vocal one. I guess my point was that credit scoring is probably one of the newest underwritng variables to be introduced in the last several years and it’s received the most debate. I find it interesting that the “traditional” (marital status, gender)underwriting criteria are accepted and not questioned. We’ve used gender forever. If it were a new concept and affected rate levels (which it does), I believe there would be arguements (like there are for credit scoring) on why it should or shouldn’t apply to certain groups of people.
This horse has been sooo beaten it can’t run anymore. The NAIC did a white paper in the late 90’s that is no different than all of today’s findings. When there are no other issues to disuss, someone says,”I know” le’s look at credit again..job perpetuation.
His campaign slogan was “Give ’em Mel” … Well they got it.
Rated 100% by AFL-CIO.
Voted against reducing tax payments on Social Security
Voted against making Bush tax cuts permanent
Voted no on responsible fatherhood via faith-based organizations
Voted no on Medical Savings Accounts
Voted against school vouchers (and against vouchers for DC students)
Voted against requiring states to test studens
The only intelligent reality comment I have heard is that if a person/family has trouble paying his bills, then perhaps there is an inability to properly maintain one’s roof or heating system.
I’d like to know how many of the people jumping up and down screaming it’s fair and ‘pay your bills you won’t have to worry about it’ have ever had a situation where they couldn’t pay their bills through no fault of their own.
Victims of identity theft would be victimized twice- IMHO. Let’s charge them more because they obviously are at fault when Ford Motor Credit released their info last year.
Victims of natural disasters would be victimized twice as well. Triple the rates under the risk, then add another percentage because since they fell behind in bills to pay the $6000 deductible, they obviously don’t have their priorities straight. Or, since they couldn’t work for two months until their place of employment was destroyed they obviously can’t be trusted to maintain steady employment.
Mortgage companies use credit scoring, but when they see a time period where bills fell behind, they at least inquire. They take into account an illness, disaster, or other situation that might have caused the credit score to drop from 690 to 520. If Insurance companies are inclined to use credit history as an indicator of how much you’re going to pay, then they should a. at least give some consideration to what might be a temporary situation and b. evaluate the credit score every year so that if it goes up the premiums will go down.
In most if not all jurisdictions, insurers who use credit information to rate out a policy are REQUIRED to give consideration to what may be a temporary situation – extreme medical bills, unemployment, divorce, death of a spouse, etc. The treatment usually required is to give that risk a rate that would be associated with a “neutral” or “Average” score. The same goes when the insured is disputing something on the credit report, as in the case of identity theft.
As far as re-running the score, different companies have different practices as far as that goes. Some will run the score every year, some every other year, some at the insured’s request, some never.
Insurers don’t really know the reason WHY credit information works, just that it DOES work. I see these numbers every day, and consistently see that people with poor credit history consistently file more claims and more expensive claims than those with excellent history.
And as far as the argument that the “rich” are financing their own claims instead of submitting them goes – I have two responses:
First, income is not a factor in the score models insurers use. It’s not permitted. Low-income people can have good scores and high-income people can have low scores.
Second, so what? Insurers aren’t trying to predict all the losses that occur, they’re trying to predict the dollars that they’re going to pay out. A loss that is NEVER reported may as well have never happened from the ratemaker’s point of view.
It just bothers the heck out of me that anyone would think it is government’s job to make what is essentially and uneven and unfair proposition called “life” and try to make it more equitable for those on the bad end of the stick. What makes even minorities think that the insurance market place owes them anything? Why shouldn’t those with a greater propensity to file a claim, not pay an appropriate amount for that expected claims frequency? What did they do to get such preferential treatment in the market place? If the shoe were on the other foot, then it would be ok?
I read the report but I suspect so did the congressmen. I also remember a good post here from an underwriter which supports the use of credit because it gives insurers more pricing options and thereby increases competition and ultimately lower premiums, not higher. But this effort is just like venue shopping, where if you don’t like the answer you got, that is the conclusions of the report, then try again, this time, schedule a hearing on it and muddy up the issue a bit until you can get the results that you need.
why should the insurance companies be punished if a large % of minorities happen to have bad credit?
your credit score is an indicator of risk and ability to pay.
I dont mind then using my credit score as a part of the process to determine if I am insurable, and what my premiums should be. It is the ONLY criteria they use.
Dear anonymous, it’s far from the only criteria being used. It’s one of many.
This issue won’t die and you wonder if it will continue to be a hot topic as the housing market deteriorates and some credits scores deteriorate with it. The opponents to the use of credit always use the same arguement: 1) unfair to minorities, and 2) rich people don’t file claims, they pay them themselves.
The credit data when combined with other reliable data has been shown to be an accurate tool to predict future losses. Most importantly, as the credit scores worsen, the losses by line item increase. In other words, rich people aren’t paying their own BI & UM claims.
Does that mean that every person with bad credit will file a claim? No, just like it a means that every person with 4 speeding tickets won’t file a claim either. Just a predictor for the group, not the individual.
Quote honestly, insurance companies, through agent selection and marketing, have a better way to “red-line” than using credit scores.
Given the current attitude of “it’s not my fault” that prevails in our nation, I would suspect that if, today, an insurance company created a new underwriting variable called “gender”, there would be an uproar that this unfairly penalizes those who were born male or female. It would certainly start a debate on whether a gay or lesbian (“not that there is anything wrong with that”)deserves the male or female rate level.
I was agreeing with most everything until you had to throw the gay/lesbian bit in there. you really missed the “mark” on that one. there’s only a small % of people that consider themselves as transgendered. i guarantee you that a gay man does not consider himself female and a lesbian does not consider herself a man.
bad analogy. please try again.
The quotes from Congressmen Watt and Gutierrez lead me to question whether they actually read the report, or if they understand what they read. The conclusions were clear: “credit-based insurance scores are effective predictors of risk under automobile insurance policies” and “scores have only a small effect as a “proxy” for membership in racial and ethnic groups estimating of insurance risk”. In other words, when controls for race were included in the predictive models, the results did not change. If you have any interest in this topic I suggest you google the report, its a good read.
I don’t see the big fuss. The report clears credit scores as being unbiased. I guess we could all just start going by randam numbers (SSN, drivers license, whatever) so there would be no way to determine race, gender or other protected class.
via e-mail “Hi, I’m 26439527. I would like to insure my 2005 Ford Taurus in Portland Maine.”
Good point. It is a small group but a vocal one. I guess my point was that credit scoring is probably one of the newest underwritng variables to be introduced in the last several years and it’s received the most debate. I find it interesting that the “traditional” (marital status, gender)underwriting criteria are accepted and not questioned. We’ve used gender forever. If it were a new concept and affected rate levels (which it does), I believe there would be arguements (like there are for credit scoring) on why it should or shouldn’t apply to certain groups of people.
This horse has been sooo beaten it can’t run anymore. The NAIC did a white paper in the late 90’s that is no different than all of today’s findings. When there are no other issues to disuss, someone says,”I know” le’s look at credit again..job perpetuation.
His campaign slogan was “Give ’em Mel” … Well they got it.
Rated 100% by AFL-CIO.
Voted against reducing tax payments on Social Security
Voted against making Bush tax cuts permanent
Voted no on responsible fatherhood via faith-based organizations
Voted no on Medical Savings Accounts
Voted against school vouchers (and against vouchers for DC students)
Voted against requiring states to test studens
The only intelligent reality comment I have heard is that if a person/family has trouble paying his bills, then perhaps there is an inability to properly maintain one’s roof or heating system.
I’d like to know how many of the people jumping up and down screaming it’s fair and ‘pay your bills you won’t have to worry about it’ have ever had a situation where they couldn’t pay their bills through no fault of their own.
Victims of identity theft would be victimized twice- IMHO. Let’s charge them more because they obviously are at fault when Ford Motor Credit released their info last year.
Victims of natural disasters would be victimized twice as well. Triple the rates under the risk, then add another percentage because since they fell behind in bills to pay the $6000 deductible, they obviously don’t have their priorities straight. Or, since they couldn’t work for two months until their place of employment was destroyed they obviously can’t be trusted to maintain steady employment.
Mortgage companies use credit scoring, but when they see a time period where bills fell behind, they at least inquire. They take into account an illness, disaster, or other situation that might have caused the credit score to drop from 690 to 520. If Insurance companies are inclined to use credit history as an indicator of how much you’re going to pay, then they should a. at least give some consideration to what might be a temporary situation and b. evaluate the credit score every year so that if it goes up the premiums will go down.
Dawn –
In most if not all jurisdictions, insurers who use credit information to rate out a policy are REQUIRED to give consideration to what may be a temporary situation – extreme medical bills, unemployment, divorce, death of a spouse, etc. The treatment usually required is to give that risk a rate that would be associated with a “neutral” or “Average” score. The same goes when the insured is disputing something on the credit report, as in the case of identity theft.
As far as re-running the score, different companies have different practices as far as that goes. Some will run the score every year, some every other year, some at the insured’s request, some never.
Insurers don’t really know the reason WHY credit information works, just that it DOES work. I see these numbers every day, and consistently see that people with poor credit history consistently file more claims and more expensive claims than those with excellent history.
And as far as the argument that the “rich” are financing their own claims instead of submitting them goes – I have two responses:
First, income is not a factor in the score models insurers use. It’s not permitted. Low-income people can have good scores and high-income people can have low scores.
Second, so what? Insurers aren’t trying to predict all the losses that occur, they’re trying to predict the dollars that they’re going to pay out. A loss that is NEVER reported may as well have never happened from the ratemaker’s point of view.
OK…now I got what you were saying. Thanks! (it’s nice to have an intelligent conversation on here)
It just bothers the heck out of me that anyone would think it is government’s job to make what is essentially and uneven and unfair proposition called “life” and try to make it more equitable for those on the bad end of the stick. What makes even minorities think that the insurance market place owes them anything? Why shouldn’t those with a greater propensity to file a claim, not pay an appropriate amount for that expected claims frequency? What did they do to get such preferential treatment in the market place? If the shoe were on the other foot, then it would be ok?
I read the report but I suspect so did the congressmen. I also remember a good post here from an underwriter which supports the use of credit because it gives insurers more pricing options and thereby increases competition and ultimately lower premiums, not higher. But this effort is just like venue shopping, where if you don’t like the answer you got, that is the conclusions of the report, then try again, this time, schedule a hearing on it and muddy up the issue a bit until you can get the results that you need.