“Proponents for the use of credit-based insurance scores argue that they are predictive of an insured’s future claims experience, and are necessary tools for underwriting and/or rating. ”
if i have an accident, why not have the insurance pay and fix my car, afterall, is that what i paid insurance for? how does my credit rating really fix into that? i work for an insurance company and still not sure how this really helps. to me it should be an 1-part indicator of possible fraud claims. but it should not be a factor for rating a policy. it should not matter about my credit and i am glad some states say nix! why should someone whose credit is good and files a claim not considered like anyone else for filing? this is where it gets confusing. rich or poorer, or for that matter the credit – claim is a claim – just like an accident is an accident. i’d say have all states take it out of the equation.
RE: Future claims…I work for a small regional ins co that did not begin credit scoring until 10-1-07. We found that the vast majority of new business written in the preceding 24 months was for lower credit score customers. We were being adversely selected against because the good credit score customers could get a much better rate elsewhere, and the poor credit score customers got a much better rate with us. Long story short, we are paying dearly for being among the last carriers to adopt credit scoring. All those poor credit score customers have been killing our loss ratio – we can’t weed them out fast enough based on their claims experience.
Those with more questionable credit make “riskier” decisions with their finances and as a result, it can be assumed that they make riskier decisions in the their everyday life….such as driving more recklessly, drinking and driving, not maintaining their home or protecting their assets. It is about responsibility and care on the part of the insured. Those with poor credit have greater instances of loss, and with greater severity. This all means that insurance companies pay more in losses and those costs get passed on to other insureds in the form of higher premiums.
i disagree, that most folks will make more risky decisions…
folks that are in lapse in insurance and drive a veh are considered a better risk in most cases than those that know better… truly think that this is not a true factor on possible risks!
The entire credit score issue (not only for insurance purposes) is completely ridiculous and the reason why the economy is exactly where it is. The problem with the credit score is following – people only get a credit score when they create debts, which is never a sign of having any cash rather then a good payment behaviour. Those people who pay at least the minimum balance will always be out of cash, but get a good score and even more credit offers. So it needs only the loss of the job or a sickness and the whole credit bubble burst and at the end, all the institutions which trust in credit scores will never see their money again, despite a fantastic credit rating. I expericed the problem which all expatriates face when they come to America – earning good money, but as you don’t have a credit history, you don’t even get a car lease, a credit card, a rent, but horrible insurance conditions, even you have a better payment behavior than many of those with the good credit rating. In my opinion, the only way to know, if a customer is a “good” customer who pays his bills, is to know, how much money does he have left over from their monthly paycheck, but therefore, this system has to be completely turned around.
Credit scores cannot descibe behavior, riskier driver or safer…..but the statistic shows lower scores have more claims….insurance is statistic based not behavior based…..this is what always starts the argument-
I did not become a better driver when I got married…I just got the benefit of a better statistic, My credit does not increase/decrease my driving ability…but I get the advantage/diadvantage tied with it.
It’s very easy to misunderstand the insurance score issue if you aren’t familiar with how insurance companies truly use credit. Chris – I sympathize with the difficulty you faced in not have enough credit when you moved to America. However, most insurance companies will not ‘penalize’ you for having too little or no credit. You will only see higher insurance rates if you have BAD credit (late payments, collection accounts, bankruptcy, etc). Insurers are not trying to determine if you are going to pay your bills; a person’s credit information correlates to their driving habits. If you are responsible with your credit, then you are typically a more responsible driver (so the statistics say). The system does have it’s flaws, but it’s also been a great way to reward people who have good credit by giving them better insurance rates.
CREDIT SCORING WITH ALL OF MY MAJOR COMPANIES IS DIFFERENT. ALL HAVE DIFFERENT “HOT BUTTONS” WHEN IT COMES TO THE “CREDIT SCORE” FOR EACH COMPANY. SOME GO BY CREDIT CARDS-TOO MANY, TOO HIGH BALANCE, ETC. SOME COMPANIES ACTUALLY PENALIZE A CUSTOMER FOR NOT HAVING CREDIT: EXAMPLE, OLDER PERSON THAT HAS 1 CREDIT CARD FOR GAS PURCHASES AND PAYS CASH FOR ALL OTHER PURCHASES. I KNOW, IT HAPPENED TO MY 80 YR OLD MOTHER WHEN SHE APPLIED FOR INSURANCE AND FOR ANOTHER CREDIT CARD. AS AN AGENT, DO AWAY WITH IT AND BASE RATES AS IN YEARS GONE BY, ON DRIVING RECORDS AND CLAIMS HISTORY–CLUE REPORTS WILL GIVE YOU ALL CLAIMS IN 5 YEARS!
I will not argue with the crrelation with proit sharing checks and scoring. I will never be convinced there is no discrimination towards those who had a good score but saw it reduced because of a job loss, unforseen medical expenses[this will affect the score if a collection agency gets involved] or other reasons not connected to risky behavior. [like too many car dealer credit inquiries when looking for an auto]. The problem is there is no override for insureds that may through no fault of their own fall into one of these categories. I saw my own score reduce 100 points within 60 days after I borrowed a large amount of money to purchase real estate. I have had one auto claim ever [uninsured fault of another]and one property claim [fire] in the past 40 years.
The mortgage and banking industry bankrupted by the feel good policies of the left. Of course, we can’t hurt anyone’s feelings, we must give everyone a loan. Now they want to bankrupt our industry! We need to protect our industry and not cave into these corrupt slimes.
Reality is in the statistics, but more so common sense. People who don’t have their financial act together don’t have much else together. We can’t continue to subsidize their insurance because of their irresponsibilities. Also, if we hold them accountable, maybe they will manage their life better!
Lastly, these people like to insult minorities as being the only people who are not capable of acheiving top credit scores. It’s time to stop looking down on minorities and label certain racial groups as being irresponsible!
here’s the fallacy on your statements based on supposed statistics:
if everytime i apply for a loan, for a home or personal; or apply for a credit card – both of these reduce my credit score. because of this i am a risk? no! if i am late on a payment, that reduces my credit score as well. so how does that factor into a true scoring of the credit score? this is the fallable part and why credit should not be used to determine my risk of filing a claim to fix my car. this is why more and more states are starting to declare that credit should not be used. so tell me? how do you stop those checks on my credit to stop lowering my score and become a bad risk because I MIGHT FILE A CLAIM. oops, did i say might or than likely to file a claim. does it matter if i have a good credit that i will file a claim if involved in accident? there’s the fallacy.
How you manage money is a predictor of how you manage your life. That said, we should favor elimination of credit score underwriting as that will make it exceptionally difficult for the GEICO’s and Progressive Direct types to compete.
Very good post. I might add that many studies show that credit scores are pretty consistent among all income levels. Think about all the people who fake wealth to live in wealthy zip codes.
Ain’t it just great, ain’t it just wonderful when those of us who make up the vast unwashed masses finally receive vindication?
You anal retentive types just don’t get it do you? Just because you think a thought doesn’t mean that it’s valid, that it needs to be put into the rating procedure manual, or even voiced.
If you would have read the article you would have understood that the collapse of the credit markets, and the consequential lowering of credit scores, is impacting more and more insureds.
Now, are you really suggesting that these folks, who 8 months ago sported 750+ scores and are now considering short sales of their homes have lost all sense of responsibility and are, therefore, higher risks?
You really are funny. You’re probably one of those high quality profiles who’s rates the insurers are subsidizing by using credit scores to justify higher premium to the less credit worthy. To top it off, I’ll go so far as to suggest that you are one of those who uses his cell phone while driving. LOL.
can’t we use them anyway we can read them? afterall, if a cup is only 1/2 full is it truly 1/2 full or 1/2 empty? so using statistics is a falsity of a true society. claiming that folks w/a low credit score are more likely to file a claim. afterall, is that what insurance is for to indemnify my loss? does it really matter what credit it i have? if it is not a false/fraud claim, then indemnify me for my loss based on the loss that i filed and not the credit that might be good or bad!!!
I have said it before and I will say it again. The insurance business is crooked, is now, always has been and always will be.
Anything an insurance company can do to segregate a market into fragments that may be more advantageous to their selling other coverage (homeowners, umbrella, life insurance health insurance, disability income)and allow them to “skim the cream” on, for example, auto insurance, they will do and create the statics to support that position. The customer be damned.
the following statement is ridiculous lie.
In this challenging economy, it is essential that insurance regulators have the necessary tools to prevent collapsing credit markets from unfairly impacting consumers.”
In Fact, those who have especially bad credit scores got themselves there all on their own; “The Economy” had NOTHING to do with it. Studies to disprove lower scores translate to more claims have failed to statistically prove their point. I am in personal auto in 30 states and our company stats testify to the fact that lower credit score people have more frequent and more severe claims. Period !! These low credit score people got themselves where they are as a part of their entire life style. As far as I’m concerned they should continue pay the price for it. That someones credit is poor is no one’s fault but their own. The “American Blame Someone Else” Game must End !!! thats what got our economy here in the first place.
Reverend, Why, especially in this free, and highly regulated, market, do you consider it unfair, or “crooked” to try to be selective and be profitable? Would you rather we succumb to the political forces, take all and price all the same?
Wudchuck, I have followed your posts for some time and always found your reasoning sound but on credit scoring I think the confusion is because you don’t understand WHAT it impacts. (from the article): Opponents say…..”the use of credit-based insurance scores unfairly discriminate against lower-income individuals” . The question here is whether credit scores somehow affect the rates charged such that it is UNFAIR for some but not for others. If it is unfair, does that meant they pay a higher rate? If so, then it would seem that for others it is also UNFAIR that they would pay a rate lower than they otherwise would. This is not how credit scores are used. Credit scores merely identify insurance consumers who may be economically distressed, who may have trouble paying their premiums and let their insurance lapse. They may have an overreliance on insurance (morale hazard); or if you can assume that lower scores translates into not having a lot of resources, such as money, in savings or on hand or whatever, they may inflate a claim to increase the payout (moral hazard). Or if they have an accident, after letting their insurance lapse, who pays that claim? The other driver, who is probably insured and so his company pays an uninsured motorist claim, thereby transferring the risk from the tortfeasor to the claimant. Is this FAIR? For credit scoring to be UNFAIR for a particular consumer, then it would follow that someone else benefits by having lower scored consumers pay a higher rate, thereby subsidizing those with higher scores. But again, this is NOT how it is used. What the score does is identify consumers who have few assets to protect and ensure that the rates charged are based on the increased probability of having some other financial condition that makes them different from others in their “class”. the problem I have with this debate is that the question of FAIRNESS is not appropriate at all to the discussion….why should insurance rates be “FAIR” at all? Why should my kid pay the same rate I do, when he is as careless with his finances as he is with his driving? He can’t keep a job, is late paying his bills, and drives as he sees fit, all the while secure in the fact that if he has an accident, he is covered and he’ll get a check for damages when he turns in a claim. He doesn’t even think about protecting himself and his assets by exercising due caution and diligence…..this is the type of individual who should be identified and treated differently in the underwriting of his risk. My condition is not the same as his; is that FAIR? Any increase in potential exposure should be accounted for when pricing risk. If there was a need for FAIRNESS in underwriting, why bother at all and make one rate for everyone? Well then those with better attributes would actually be paying more money to subsidize those with less than good attributes. People are different, why should those differences be ignored? The only ones who will benefit from banning credit score are exactly those on the lower end of the scale…..it that FAIR? NO! and that is why fairness should not be a part of this discussion….
Lets see dont pay your mortgage, someone else will pay it for you. Dont pay your credit card, Thats ok too,go ahead, file bankrupcy. Now, dont worry about your insurance premiums because we will be here to pay your increased exposure because your a loser.
here’s the problem, i never discussed it was affecting the lower individual unfairly, i said that it should not matter whether rich or poor — filing a claim for an accident to reimdemnify me, my credit should not matter. remember i could be rich and still have a lower score, because i may have recently purch a house or gotten more credit cards… so does that realy translate in me filing a claim to get my car fixed? NO! it goes back to the familiar saying is that glass 1/2 full or 1/2 empty? we can constantly change statitics to anything we want.
You are correct, there is more to it than just underwriting….I guess we belong to an obsolete section of society where we don’t need any help because we believe in accountability and responsibility. More of those two characteristics would make insurance and banking more transparent. One thing for sure, this won’t go away…
What’s wrong with sound business practices? If insurance scoring is merely another essential tool in risk evaluation/premium rating so be it. To say that an individual is not responsible for their own finances is the same as saying that an individual is not responsible for their own driving history.
Now if it can be unequivocally proven that the scoring models (presently incorporated) unfairly segment a certain race or class of people, well then perhaps the model(s) should be re-worked. Note – re-worked, not eliminated.
Succinctly right on!
The number of responses clearly indicates this remains to be quite the hot topic, but surprisingly hot even from within the industry. Interesting. Then again, we may not always do the best job of educating, even our own. Communication is a wonderful thing – if only more would try it.
You are so correct, otherwise Congress wouldn’t be so gung ho to “fix” the insurance industry simply because AIG is based on their insurance operations; but as we all know, only the insurance industry gets it, that derivatives are the source of the meltdown but derivatives are NOT insurance contracts and so were not regulated by insurance regulators; believe me, if the NY insurance commissioner was involved in regulating these CDS, they would have been well reserved and making payments would not be bringing down the company’s worth.
Why not go back to the old days for underwriting. At least in the states i work in, if an individual gets stopped for speeding, or an accident, the driver gets surcharged and pays a higher insurance premium. Is this not enough for P&C Underwriters to use towards rating a policy, using actual numbers of driving experience. Credit Scores will only tell the use of credit only, as in payments of bills, etc. It does not say that just because I work with a tight budget and trying to juggle what is paid out every month. Some people who make High Incomes take just as much risk, but through high wages it is not difficult for them to pay bills and thus getting a higher score.
I have worked with many companies, and they always tell the producers their propoganda just to get us to produce for them. This is why I work as a Broker today, because it is my job to represent my clients.
Credit scoring and claims has never been accurate. This practice will lead to problems. Credit scores do not take into effect ability to pay debts. Therefore, you lump anyone with a late payment into another class the credit scoring was meant to protect. Therefore, the people that need help get penalized and have to pay more, while those that can afford to pay more actually pay less. A very awkward way to structure things. There has to be a better way for this to be rated!
Okay, if I’m understanding the point you are attempting to make (and that’s a big stretch, but please indulge me) you feel those who fail to maintain fiscal responsibility should pay lower premiums? Okay, now correct me if I’m wrong, but isn’t that the same as saying those who have demonstrated a poor driving history should pay lower premiums too? Since that group will most likely use their insurance more than those with good driving histories, let’s charge them less.
ok, here’s the problem. insurance is a service that we pay for, are we just ignorant as to not use a service i pay for? afterall, the states require us to have insurance on our vehicles just incase we do have an accident. this would be like having a cpa or a lawyer on a retainer. if i have to use it, then i want the service provided that i paid for. how many rich folks have lawyers on retainers? afterall, they retained them because – service availability. again, credit that everyone is claiming – is for the reason: more likely to file a claim. again, this is a falsity, because, what about the other party i might hit?! are we going to look at the other party i might hit for their credit, because they are likely going to file a claim against me because i am at fault. this is why credit does not work.
Interesting post wudchuck but I’m uncertain how it relates to the point of the original article. And I’m not exactly sure what your argument IS regarding credit. Credit based insurance scoring is simply an available tool that some insurance companies use to help determine proper premium rating. For auto insurance, similar to a driving history, it is merely another factor for an actuary to use when rating risk.
What credit based insurance scoring and subsequent rating has to do with lawyers, CPA’s and whether or not someone decides to use a retainer is beyond me… explain please.
insurance is like a retainer for a lawyer and we want to have that insurance available to make a payout on a claim. afterall, if it’s my fault, i want to be imdemnified for my loss; just like the guy i hit. why should i have to pay for it out of my pocket, when i purchased the insurance for it. if you want to believe that because i have a lower score on my credit, i am going to file a claim – i don’t think so! technically, if you think a little outside of the box, are we not actually creating a loan society for the loss? after all, you want me to place your money w/others to cover not only your loss but anyone else in the pool.
secondly, why not think about it this way – if you want to rate me w/a credit score and that i might file a claim, what about the party i might hit that MIGHT file a claim. did you look at his credit? NO! because he’s not insuring his vehicle with us. if he did, it would not matter for my premium. if it were me that was hit, why should i pay out of my pocket if the other driver was at fault. why not have him pay for a car to use while my car is fixed, but i won’t allow you to use my credit to help determine his rate. so, why should we use the credit score for the insured? this is why we have problems.
also, with the credit score, that is shrinking w/the debt ratio of credit cards and the beacon score. with so much at stake due to the economy, there is a possiblity that even our country could go bankrupt! are you going to use the credit of our country as a score! if you did, you’d fail. we are trillions in debt as a company. SORRY, but my taxpayer dollars have left my hand w/o a single goodbye. who knows where it went?!
so back to the question: how can my credit determine my driving record? why do i need to retain services if my credit is so good, why have insurance anyways – especially if i am not liable to file a claim. a monstrous thought! truly questions to ponder and sort.
Wudchuck;
Think about it as the old, tried and true, 80 – 20 rule. I can tell you that 20% of my clients have 80% of the losses. This is another tool to find those 20% and charge them accordingly.
This rule has been around for two hundred years I bet and can be applied to many situations, and is on par with: “A ounce of prevention is worth a pound of cure” “An acorn doesn’t fall far from the tree” “A leapord can’t change his spots” “You lie with dogs you’re gonna get fleas” “the trouble with liberals are they run out of other peoples’ money” “where there’s smoke there’s fire” on and on…………
BTW, the glass is half full.
“they have no loss mitigation benefit”
I am curious to see a citation on this
here’s my problem:
“Proponents for the use of credit-based insurance scores argue that they are predictive of an insured’s future claims experience, and are necessary tools for underwriting and/or rating. ”
if i have an accident, why not have the insurance pay and fix my car, afterall, is that what i paid insurance for? how does my credit rating really fix into that? i work for an insurance company and still not sure how this really helps. to me it should be an 1-part indicator of possible fraud claims. but it should not be a factor for rating a policy. it should not matter about my credit and i am glad some states say nix! why should someone whose credit is good and files a claim not considered like anyone else for filing? this is where it gets confusing. rich or poorer, or for that matter the credit – claim is a claim – just like an accident is an accident. i’d say have all states take it out of the equation.
RE: Future claims…I work for a small regional ins co that did not begin credit scoring until 10-1-07. We found that the vast majority of new business written in the preceding 24 months was for lower credit score customers. We were being adversely selected against because the good credit score customers could get a much better rate elsewhere, and the poor credit score customers got a much better rate with us. Long story short, we are paying dearly for being among the last carriers to adopt credit scoring. All those poor credit score customers have been killing our loss ratio – we can’t weed them out fast enough based on their claims experience.
Those with more questionable credit make “riskier” decisions with their finances and as a result, it can be assumed that they make riskier decisions in the their everyday life….such as driving more recklessly, drinking and driving, not maintaining their home or protecting their assets. It is about responsibility and care on the part of the insured. Those with poor credit have greater instances of loss, and with greater severity. This all means that insurance companies pay more in losses and those costs get passed on to other insureds in the form of higher premiums.
i disagree, that most folks will make more risky decisions…
folks that are in lapse in insurance and drive a veh are considered a better risk in most cases than those that know better… truly think that this is not a true factor on possible risks!
Well, wudchuck seems that the statistics used by insurance companies seem to disagree with you.
The entire credit score issue (not only for insurance purposes) is completely ridiculous and the reason why the economy is exactly where it is. The problem with the credit score is following – people only get a credit score when they create debts, which is never a sign of having any cash rather then a good payment behaviour. Those people who pay at least the minimum balance will always be out of cash, but get a good score and even more credit offers. So it needs only the loss of the job or a sickness and the whole credit bubble burst and at the end, all the institutions which trust in credit scores will never see their money again, despite a fantastic credit rating. I expericed the problem which all expatriates face when they come to America – earning good money, but as you don’t have a credit history, you don’t even get a car lease, a credit card, a rent, but horrible insurance conditions, even you have a better payment behavior than many of those with the good credit rating. In my opinion, the only way to know, if a customer is a “good” customer who pays his bills, is to know, how much money does he have left over from their monthly paycheck, but therefore, this system has to be completely turned around.
Credit scores cannot descibe behavior, riskier driver or safer…..but the statistic shows lower scores have more claims….insurance is statistic based not behavior based…..this is what always starts the argument-
I did not become a better driver when I got married…I just got the benefit of a better statistic, My credit does not increase/decrease my driving ability…but I get the advantage/diadvantage tied with it.
It’s very easy to misunderstand the insurance score issue if you aren’t familiar with how insurance companies truly use credit. Chris – I sympathize with the difficulty you faced in not have enough credit when you moved to America. However, most insurance companies will not ‘penalize’ you for having too little or no credit. You will only see higher insurance rates if you have BAD credit (late payments, collection accounts, bankruptcy, etc). Insurers are not trying to determine if you are going to pay your bills; a person’s credit information correlates to their driving habits. If you are responsible with your credit, then you are typically a more responsible driver (so the statistics say). The system does have it’s flaws, but it’s also been a great way to reward people who have good credit by giving them better insurance rates.
Bad credit , bad risk. What is there not to understand?
Are some of you people first graders?
Sheesh…….
CREDIT SCORING WITH ALL OF MY MAJOR COMPANIES IS DIFFERENT. ALL HAVE DIFFERENT “HOT BUTTONS” WHEN IT COMES TO THE “CREDIT SCORE” FOR EACH COMPANY. SOME GO BY CREDIT CARDS-TOO MANY, TOO HIGH BALANCE, ETC. SOME COMPANIES ACTUALLY PENALIZE A CUSTOMER FOR NOT HAVING CREDIT: EXAMPLE, OLDER PERSON THAT HAS 1 CREDIT CARD FOR GAS PURCHASES AND PAYS CASH FOR ALL OTHER PURCHASES. I KNOW, IT HAPPENED TO MY 80 YR OLD MOTHER WHEN SHE APPLIED FOR INSURANCE AND FOR ANOTHER CREDIT CARD. AS AN AGENT, DO AWAY WITH IT AND BASE RATES AS IN YEARS GONE BY, ON DRIVING RECORDS AND CLAIMS HISTORY–CLUE REPORTS WILL GIVE YOU ALL CLAIMS IN 5 YEARS!
This comes up every time credit scores are used for politicians to get positive press. Every single time. Over and over. Boring.
I will not argue with the crrelation with proit sharing checks and scoring. I will never be convinced there is no discrimination towards those who had a good score but saw it reduced because of a job loss, unforseen medical expenses[this will affect the score if a collection agency gets involved] or other reasons not connected to risky behavior. [like too many car dealer credit inquiries when looking for an auto]. The problem is there is no override for insureds that may through no fault of their own fall into one of these categories. I saw my own score reduce 100 points within 60 days after I borrowed a large amount of money to purchase real estate. I have had one auto claim ever [uninsured fault of another]and one property claim [fire] in the past 40 years.
The mortgage and banking industry bankrupted by the feel good policies of the left. Of course, we can’t hurt anyone’s feelings, we must give everyone a loan. Now they want to bankrupt our industry! We need to protect our industry and not cave into these corrupt slimes.
Reality is in the statistics, but more so common sense. People who don’t have their financial act together don’t have much else together. We can’t continue to subsidize their insurance because of their irresponsibilities. Also, if we hold them accountable, maybe they will manage their life better!
Lastly, these people like to insult minorities as being the only people who are not capable of acheiving top credit scores. It’s time to stop looking down on minorities and label certain racial groups as being irresponsible!
here’s the fallacy on your statements based on supposed statistics:
if everytime i apply for a loan, for a home or personal; or apply for a credit card – both of these reduce my credit score. because of this i am a risk? no! if i am late on a payment, that reduces my credit score as well. so how does that factor into a true scoring of the credit score? this is the fallable part and why credit should not be used to determine my risk of filing a claim to fix my car. this is why more and more states are starting to declare that credit should not be used. so tell me? how do you stop those checks on my credit to stop lowering my score and become a bad risk because I MIGHT FILE A CLAIM. oops, did i say might or than likely to file a claim. does it matter if i have a good credit that i will file a claim if involved in accident? there’s the fallacy.
How you manage money is a predictor of how you manage your life. That said, we should favor elimination of credit score underwriting as that will make it exceptionally difficult for the GEICO’s and Progressive Direct types to compete.
Gimme a break, it’s another TOOL.
Very good post. I might add that many studies show that credit scores are pretty consistent among all income levels. Think about all the people who fake wealth to live in wealthy zip codes.
LOL – you’re funny.
Ain’t it just great, ain’t it just wonderful when those of us who make up the vast unwashed masses finally receive vindication?
You anal retentive types just don’t get it do you? Just because you think a thought doesn’t mean that it’s valid, that it needs to be put into the rating procedure manual, or even voiced.
If you would have read the article you would have understood that the collapse of the credit markets, and the consequential lowering of credit scores, is impacting more and more insureds.
Now, are you really suggesting that these folks, who 8 months ago sported 750+ scores and are now considering short sales of their homes have lost all sense of responsibility and are, therefore, higher risks?
You really are funny. You’re probably one of those high quality profiles who’s rates the insurers are subsidizing by using credit scores to justify higher premium to the less credit worthy. To top it off, I’ll go so far as to suggest that you are one of those who uses his cell phone while driving. LOL.
can’t we use them anyway we can read them? afterall, if a cup is only 1/2 full is it truly 1/2 full or 1/2 empty? so using statistics is a falsity of a true society. claiming that folks w/a low credit score are more likely to file a claim. afterall, is that what insurance is for to indemnify my loss? does it really matter what credit it i have? if it is not a false/fraud claim, then indemnify me for my loss based on the loss that i filed and not the credit that might be good or bad!!!
Will that be cherry or grape?
I have said it before and I will say it again. The insurance business is crooked, is now, always has been and always will be.
Anything an insurance company can do to segregate a market into fragments that may be more advantageous to their selling other coverage (homeowners, umbrella, life insurance health insurance, disability income)and allow them to “skim the cream” on, for example, auto insurance, they will do and create the statics to support that position. The customer be damned.
the following statement is ridiculous lie.
In this challenging economy, it is essential that insurance regulators have the necessary tools to prevent collapsing credit markets from unfairly impacting consumers.”
In Fact, those who have especially bad credit scores got themselves there all on their own; “The Economy” had NOTHING to do with it. Studies to disprove lower scores translate to more claims have failed to statistically prove their point. I am in personal auto in 30 states and our company stats testify to the fact that lower credit score people have more frequent and more severe claims. Period !! These low credit score people got themselves where they are as a part of their entire life style. As far as I’m concerned they should continue pay the price for it. That someones credit is poor is no one’s fault but their own. The “American Blame Someone Else” Game must End !!! thats what got our economy here in the first place.
Reverend, Why, especially in this free, and highly regulated, market, do you consider it unfair, or “crooked” to try to be selective and be profitable? Would you rather we succumb to the political forces, take all and price all the same?
Wudchuck, I have followed your posts for some time and always found your reasoning sound but on credit scoring I think the confusion is because you don’t understand WHAT it impacts. (from the article): Opponents say…..”the use of credit-based insurance scores unfairly discriminate against lower-income individuals” . The question here is whether credit scores somehow affect the rates charged such that it is UNFAIR for some but not for others. If it is unfair, does that meant they pay a higher rate? If so, then it would seem that for others it is also UNFAIR that they would pay a rate lower than they otherwise would. This is not how credit scores are used. Credit scores merely identify insurance consumers who may be economically distressed, who may have trouble paying their premiums and let their insurance lapse. They may have an overreliance on insurance (morale hazard); or if you can assume that lower scores translates into not having a lot of resources, such as money, in savings or on hand or whatever, they may inflate a claim to increase the payout (moral hazard). Or if they have an accident, after letting their insurance lapse, who pays that claim? The other driver, who is probably insured and so his company pays an uninsured motorist claim, thereby transferring the risk from the tortfeasor to the claimant. Is this FAIR? For credit scoring to be UNFAIR for a particular consumer, then it would follow that someone else benefits by having lower scored consumers pay a higher rate, thereby subsidizing those with higher scores. But again, this is NOT how it is used. What the score does is identify consumers who have few assets to protect and ensure that the rates charged are based on the increased probability of having some other financial condition that makes them different from others in their “class”. the problem I have with this debate is that the question of FAIRNESS is not appropriate at all to the discussion….why should insurance rates be “FAIR” at all? Why should my kid pay the same rate I do, when he is as careless with his finances as he is with his driving? He can’t keep a job, is late paying his bills, and drives as he sees fit, all the while secure in the fact that if he has an accident, he is covered and he’ll get a check for damages when he turns in a claim. He doesn’t even think about protecting himself and his assets by exercising due caution and diligence…..this is the type of individual who should be identified and treated differently in the underwriting of his risk. My condition is not the same as his; is that FAIR? Any increase in potential exposure should be accounted for when pricing risk. If there was a need for FAIRNESS in underwriting, why bother at all and make one rate for everyone? Well then those with better attributes would actually be paying more money to subsidize those with less than good attributes. People are different, why should those differences be ignored? The only ones who will benefit from banning credit score are exactly those on the lower end of the scale…..it that FAIR? NO! and that is why fairness should not be a part of this discussion….
Lets see dont pay your mortgage, someone else will pay it for you. Dont pay your credit card, Thats ok too,go ahead, file bankrupcy. Now, dont worry about your insurance premiums because we will be here to pay your increased exposure because your a loser.
GIVE ME A BREAK, SOCIALISM AT WORK
i love it when you use all capital letters
here’s the problem, i never discussed it was affecting the lower individual unfairly, i said that it should not matter whether rich or poor — filing a claim for an accident to reimdemnify me, my credit should not matter. remember i could be rich and still have a lower score, because i may have recently purch a house or gotten more credit cards… so does that realy translate in me filing a claim to get my car fixed? NO! it goes back to the familiar saying is that glass 1/2 full or 1/2 empty? we can constantly change statitics to anything we want.
You are correct, there is more to it than just underwriting….I guess we belong to an obsolete section of society where we don’t need any help because we believe in accountability and responsibility. More of those two characteristics would make insurance and banking more transparent. One thing for sure, this won’t go away…
What’s wrong with sound business practices? If insurance scoring is merely another essential tool in risk evaluation/premium rating so be it. To say that an individual is not responsible for their own finances is the same as saying that an individual is not responsible for their own driving history.
Now if it can be unequivocally proven that the scoring models (presently incorporated) unfairly segment a certain race or class of people, well then perhaps the model(s) should be re-worked. Note – re-worked, not eliminated.
Succinctly right on!
The number of responses clearly indicates this remains to be quite the hot topic, but surprisingly hot even from within the industry. Interesting. Then again, we may not always do the best job of educating, even our own. Communication is a wonderful thing – if only more would try it.
You are so correct, otherwise Congress wouldn’t be so gung ho to “fix” the insurance industry simply because AIG is based on their insurance operations; but as we all know, only the insurance industry gets it, that derivatives are the source of the meltdown but derivatives are NOT insurance contracts and so were not regulated by insurance regulators; believe me, if the NY insurance commissioner was involved in regulating these CDS, they would have been well reserved and making payments would not be bringing down the company’s worth.
Why not go back to the old days for underwriting. At least in the states i work in, if an individual gets stopped for speeding, or an accident, the driver gets surcharged and pays a higher insurance premium. Is this not enough for P&C Underwriters to use towards rating a policy, using actual numbers of driving experience. Credit Scores will only tell the use of credit only, as in payments of bills, etc. It does not say that just because I work with a tight budget and trying to juggle what is paid out every month. Some people who make High Incomes take just as much risk, but through high wages it is not difficult for them to pay bills and thus getting a higher score.
I have worked with many companies, and they always tell the producers their propoganda just to get us to produce for them. This is why I work as a Broker today, because it is my job to represent my clients.
Credit scoring and claims has never been accurate. This practice will lead to problems. Credit scores do not take into effect ability to pay debts. Therefore, you lump anyone with a late payment into another class the credit scoring was meant to protect. Therefore, the people that need help get penalized and have to pay more, while those that can afford to pay more actually pay less. A very awkward way to structure things. There has to be a better way for this to be rated!
Roger… what?
Okay, if I’m understanding the point you are attempting to make (and that’s a big stretch, but please indulge me) you feel those who fail to maintain fiscal responsibility should pay lower premiums? Okay, now correct me if I’m wrong, but isn’t that the same as saying those who have demonstrated a poor driving history should pay lower premiums too? Since that group will most likely use their insurance more than those with good driving histories, let’s charge them less.
See? That makes no sense.
ok, here’s the problem. insurance is a service that we pay for, are we just ignorant as to not use a service i pay for? afterall, the states require us to have insurance on our vehicles just incase we do have an accident. this would be like having a cpa or a lawyer on a retainer. if i have to use it, then i want the service provided that i paid for. how many rich folks have lawyers on retainers? afterall, they retained them because – service availability. again, credit that everyone is claiming – is for the reason: more likely to file a claim. again, this is a falsity, because, what about the other party i might hit?! are we going to look at the other party i might hit for their credit, because they are likely going to file a claim against me because i am at fault. this is why credit does not work.
Interesting post wudchuck but I’m uncertain how it relates to the point of the original article. And I’m not exactly sure what your argument IS regarding credit. Credit based insurance scoring is simply an available tool that some insurance companies use to help determine proper premium rating. For auto insurance, similar to a driving history, it is merely another factor for an actuary to use when rating risk.
What credit based insurance scoring and subsequent rating has to do with lawyers, CPA’s and whether or not someone decides to use a retainer is beyond me… explain please.
OK, GUYS, LET’S DROP THIS SUBJECT AS THERE ARE SO MANY SIDES AND OPINIONS.
my post was basically 2 parts.
insurance is like a retainer for a lawyer and we want to have that insurance available to make a payout on a claim. afterall, if it’s my fault, i want to be imdemnified for my loss; just like the guy i hit. why should i have to pay for it out of my pocket, when i purchased the insurance for it. if you want to believe that because i have a lower score on my credit, i am going to file a claim – i don’t think so! technically, if you think a little outside of the box, are we not actually creating a loan society for the loss? after all, you want me to place your money w/others to cover not only your loss but anyone else in the pool.
secondly, why not think about it this way – if you want to rate me w/a credit score and that i might file a claim, what about the party i might hit that MIGHT file a claim. did you look at his credit? NO! because he’s not insuring his vehicle with us. if he did, it would not matter for my premium. if it were me that was hit, why should i pay out of my pocket if the other driver was at fault. why not have him pay for a car to use while my car is fixed, but i won’t allow you to use my credit to help determine his rate. so, why should we use the credit score for the insured? this is why we have problems.
also, with the credit score, that is shrinking w/the debt ratio of credit cards and the beacon score. with so much at stake due to the economy, there is a possiblity that even our country could go bankrupt! are you going to use the credit of our country as a score! if you did, you’d fail. we are trillions in debt as a company. SORRY, but my taxpayer dollars have left my hand w/o a single goodbye. who knows where it went?!
so back to the question: how can my credit determine my driving record? why do i need to retain services if my credit is so good, why have insurance anyways – especially if i am not liable to file a claim. a monstrous thought! truly questions to ponder and sort.
so, is that glass 1/2 empty or 1/2 full?!
Wudchuck;
Think about it as the old, tried and true, 80 – 20 rule. I can tell you that 20% of my clients have 80% of the losses. This is another tool to find those 20% and charge them accordingly.
This rule has been around for two hundred years I bet and can be applied to many situations, and is on par with: “A ounce of prevention is worth a pound of cure” “An acorn doesn’t fall far from the tree” “A leapord can’t change his spots” “You lie with dogs you’re gonna get fleas” “the trouble with liberals are they run out of other peoples’ money” “where there’s smoke there’s fire” on and on…………
BTW, the glass is half full.
Insurance is like a retainer? Now that’s funny. Hmmm, does that mean I may have to file suit against myself if I screw up and burn my house down?