FTC Issues Report on Use of Scoring In Auto Insurance

National Underwriter has apparently received an advance copy of an upcoming FTC study on the use of scoring in auto insurance. From the NU Article:

[T]he report says the use of credit-based insurance scores “may result in benefits for consumers.”

“For example, scores permit insurance companies to evaluate risk with greater accuracy, which may make them more willing to offer insurance to higher-risk consumers for whom they would otherwise not be able to determine an appropriate premium,” according to the report.

“Scores also may make the process of granting and pricing insurance quicker and cheaper—cost savings that may be passed on to consumers in the form of lower premiums,” the report adds.

However, the report cautions, “little hard data was submitted or available to quantify the magnitude of these benefits to consumers.”

Naturally, the industry is ecstatic that the FTC didn’t slam scoring as a mechanism to engage in illegal forms of discrimination.

I’d actually suspect the FTC to have simply parrotted the industry party line based on some of the trade association press releases that have been issued, but for indications in the NU article that the FTC did note certain biases in the distribution of scores among certain ethnic groups.

Apparently the FTC study addresses that observation by noting that it can find no other way to achieve the level of risk-identification in a less biased manner, avoiding the “disparate impact” limit in federal law.

Just the same, I wouldn’t be surprised to see consumer advocate groups pick up on the racial difference point…and therefore, the news here would be that the FTC didn’t kill scoring, but otherwise the controversy remains unresolved.

I still think that interested parties should go ahead and bite the bullet, accumulating industry-wide data, and comparing indicated rates-with-scoring to indicated rates-without-scoring for certain groups of interest.

I’d expect that such a study would put a nail in the coffin of consumer advocates’ arguments, because I believe that on average, the impact of scoring would be neutral in a properly designed rating algorithm.

However, I still won’t hold my breath on such a study taking place, since not everyone shares the level of comfort I have with such a belief.