From an OSPIRG press release:
“Unfortunately, the insurance industry’s $5 million campaign against Measure 42 created a lot of confusion about what was at stake on election day,” said Norma Garcia, Senior Staff Attorney with Consumers Union.
I think that might be oversimplifying what happened, and I’ll admit that I dislike much of the advertising — pro or con — associated with ballot initiatives including Measure 42.
However, there is a bit in the press release I do agree with:
Protections would be necessary to protect consumers from being penalized with higher rates because of lower credit scores caused, for example, by filing a medical bankruptcy, owing higher balances on credit cards, being a victim of identity theft or having an error on a credit report. Garcia and Etherton point out factors like these do not make the consumer a worse driver, or more likely to have a house fire.
I agree with the sentiment of all but the last sentence of that paragraph.
(In a prior job, when I worked intimately with research and implementation of credit scoring, I was curious about the relationship of divorce/unemployment/medical bankruptcy and future loss. Some data mining showed a positive correlation. However, even I think that attempting to rate or underwrite on that basis is generally beyond the boundaries of fairness.)
Folks, other than the armchair punditry I’ve engaged in on this blog and recreational/professional interest, I’m out of the insurance credit scoring business. The businesses I work with now don’t use personal credit scores, and I’m no longer being called upon to be the absent-minded professor when lobbyists go calling upon legislators and regulators. So my ability to influence the powers-that-be is somewhat limited these days.
However, I know from your comments that many of you who come across this blog disagree with my position on insurance credit scoring. That’s fine, and assuming you’ve thought out your position and reached an anti-scoring opinion, I respect that.
If you would like to do something to improve the situation, admittedly without going to the outright ban that I would hate to see happen in any state, consider pushing the following points:
- There are errors in credit bureaus’ data. I disagree with Consumer Union’s and the PIRGs’ views on the magnitude of the problem, but I do agree with the sentiment that it could use fixing. I would encourage you to lobby federal and state regulators to implement legislation/regulation requiring that financial entities that submit data to the bureaus do so in a complete and accurate manner, with civil remedy provided if they fail to do so.
While I hear about the credit data accuracy concern mostly in the context of insurance, I can assure you that it probably has a bigger impact on your lives when it comes to credit products — mortgages, car loans, credit card interest rates, deposits required for cell phone service, etc.
Banning credit scoring in insurance doesn’t do anything about the problem on the banking side of the world. Tackling the actual problems of accuracy is probably a more effective use of your energy.
- Many states’ regulations governing insurance credit scoring include a requirement that insurers give special consideration in the event of certain extenuating circumstances that may impact your credit, including death in the family, disability, etc. Oregon does not have such a requirement. Perhaps that ought to be remedied.
- Oregon currently prohibits the use of score on renewals. That is a practice that I advocate — while I have no problem with using credit data to initially price a customer, I don’t like changing rates at renewal for reasons that seem “random” to the consumer. Readers in states that permit…or even require…that score be reviewed at renewal may want to seek a change in that practice from their state legislators and regulators.
True, if your score improves at renewal, it would be nice to see a discount. However, if it worsens…I’m not comfortable trying to sell the resultant rate bump. And if rates can’t go up because of score-at-renewal, I don’t want to lower them automatically either. (One-way only movement causes a natural erosion in rate adequacy, and I don’t like the idea of having to offset that by charging higher rates to begin with.)
And, well if automatic rate-cuts due to improved score aren’t automatic, you can always shop your insurance when appropriate. Your agent or a friendly website can help make that task as easy as possible.
1 response so far ↓
1 Will Dwinnell // 10 Nov 2006 at 6:31 am
You raise a number of important issues. I work for a credit card company building predictive statistical models of customer behavior. One point to consider: Any predictive information which is excluded because it is considered “unfair” means that customers whose risk would have been differentiated by that data will now be lumped together.
As an example, some credit issuers use data like whether customers have gotten speeding tickets to assess their credit risk. Presumably, such issuers have discovered a real statistical connection between speeding tickets and credit risk. (For lay readers, this does not mean that just because you got a speeding ticket that you will not repay your loans, it merely means that you are less likely to repay your loans.) Let’s assume that this relationship is real, for whatever underlying reason. Understandably, many people object to this practice. Consider, though, what happens if we decide to remove speeding tickets as a predictor. Think about two customers: one with speeding tickets, the other without, who otherwise look the same as customers. The speeding ticket data would have allowed businesses to perceive and respond to the greater risk posed by the speeder. Having thrown out such data, the non-speeder now gets to split the cost of our policy with the speeder, which is also seemingly unfair.