Applying credit scoring to rating and underwriting is not racist. Studies show only a small correlation between socioeconomic status and credit. People with strong credit tend to be more responsible and that attribute contributes to a lower amount of accidents for auto and better maintenance for their property. As a group, these people have more self control and a better sense of risk and reward.
None of those can be used in CA. Mileage, years of driving experience, driving record are the primary rating factors. Credit/marital status/gender cannot be used.
I can see the credit scoring on the homeowners etc… as you say they can afford to/care to better maintain their properties.
In my 25 years in the business, there are a lot of clear ‘errors’ in the auto side of the insurance scoring. A single mother whose husband took off with another woman, for example. The fact that she was suddenly thrust into poverty, while under the burden of being a single mother, has nothing to do with her driving ability, Vehicle maintenance may be an issue but that happens in every recession too. Some of the auto insurers have become smart enough not to beat this issue to death, and don’t chase off good business for no reason. Other companies start wringing their underwriting hands if someone’s score takes a drop, even though they pay their insurance bills on time and don’t have accidents.
If insurance scoring is so accurate why not just base rates on that factor? We asked that question in 1998 at a district meeting and they could not give us a good answer except that ” we can’t do that.”
It is important to note that these factors are based on groups of drivers rather than individuals. For instance, 50 year old drivers as a group have better experience than 16 year old drivers, However, a few teens are better drivers are better drivers than a few 50 year old drivers. Other factors such as convictions help minimize this disparity. While credit sore is an important factor, the inclusion of other factors such as driving experience, age and convictions help make rates more reflective of future loss experience. Many people go through upheavals in their life such as death of a loved one or divorce. Most keep paying their bills and deserve the lower auto rate.
This is one of the problems with letting politics into a conversation about insurance pricing. Kreidler obviously didn’t do his homework or he would know that insurance scoring isn’t “unfair” at all. This is a rush to judgment and will have the predictable results of premium increases, not decreases. I just have the usual words of caution to beware of what you ask for. You may not like the result. Who will he blame if he gets his way and the outcome is not to his liking? I say go back and educate yourself before grandstanding.
One thing to note is that insurance credit scoring differs from the FICO in that medical bills are eliminated from the score. One thing the department might review is the factors that go into credit scoring and review the parameters that might not be acceptable.
I do not have the details of insurance credit scoring, but it might be interesting if somebody with knowledge could share the differences.
Applying credit scoring to rating and underwriting is not racist. Studies show only a small correlation between socioeconomic status and credit. People with strong credit tend to be more responsible and that attribute contributes to a lower amount of accidents for auto and better maintenance for their property. As a group, these people have more self control and a better sense of risk and reward.
Seems like it’s only matter of time before gender & marital status are challenged.
None of those can be used in CA. Mileage, years of driving experience, driving record are the primary rating factors. Credit/marital status/gender cannot be used.
I can see the credit scoring on the homeowners etc… as you say they can afford to/care to better maintain their properties.
In my 25 years in the business, there are a lot of clear ‘errors’ in the auto side of the insurance scoring. A single mother whose husband took off with another woman, for example. The fact that she was suddenly thrust into poverty, while under the burden of being a single mother, has nothing to do with her driving ability, Vehicle maintenance may be an issue but that happens in every recession too. Some of the auto insurers have become smart enough not to beat this issue to death, and don’t chase off good business for no reason. Other companies start wringing their underwriting hands if someone’s score takes a drop, even though they pay their insurance bills on time and don’t have accidents.
If insurance scoring is so accurate why not just base rates on that factor? We asked that question in 1998 at a district meeting and they could not give us a good answer except that ” we can’t do that.”
It is important to note that these factors are based on groups of drivers rather than individuals. For instance, 50 year old drivers as a group have better experience than 16 year old drivers, However, a few teens are better drivers are better drivers than a few 50 year old drivers. Other factors such as convictions help minimize this disparity. While credit sore is an important factor, the inclusion of other factors such as driving experience, age and convictions help make rates more reflective of future loss experience. Many people go through upheavals in their life such as death of a loved one or divorce. Most keep paying their bills and deserve the lower auto rate.
This is one of the problems with letting politics into a conversation about insurance pricing. Kreidler obviously didn’t do his homework or he would know that insurance scoring isn’t “unfair” at all. This is a rush to judgment and will have the predictable results of premium increases, not decreases. I just have the usual words of caution to beware of what you ask for. You may not like the result. Who will he blame if he gets his way and the outcome is not to his liking? I say go back and educate yourself before grandstanding.
One thing to note is that insurance credit scoring differs from the FICO in that medical bills are eliminated from the score. One thing the department might review is the factors that go into credit scoring and review the parameters that might not be acceptable.
I do not have the details of insurance credit scoring, but it might be interesting if somebody with knowledge could share the differences.