Oregon Measure 42

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:

From the newswires:

Measure 42 has been closely watched nationally. Oregon voters were the first in the nation to consider whether to ban using credit information to help insurers set rates. Their overwhelming decision to reject Measure 42 shows a strong majority of voters are satisfied with the consumer protections already in Oregon law. The margin of defeat here is likely to discourage efforts in other states to ban the practice.

Even though I’m happy to see that Measure 42 failed, I must say the whole release seems an annoyingly smug statement from one of the organizations that campaigned against 42. I can’t help but wonder if it’s more a reflection of folks just finding Sizemore annoying, and not wanting to risk an insurance rate hike.

It’ll be interesting to see if Measure 42-like initiatives pop up on ballots elsewhere around the country in coming years.

OK. It’s midnight. It’s past my bedtime.

I’m going to bed content that in a few months there will be a check on the administration’s power, with the Dems taking the House. The Senate still looks like a toss-up; however I’ll bet that when I wake up in the morning, it’s 50R, 48D+2I assuming one recount holds.

And out in Oregon — Measure 42 is currently showing 66% no.

What a fun night it’s been.

At 8:28pm PST, Measure 42 is coming in 34% yes; 66% no with the vote about 12% counted.

There’s a “Guest Viewpoint” in today’s Eugene Register-Guard discussing Measure 42 which has a couple of points that I have to take issue with.

But the premise has a problem: the credit information itself is unreliable. How can unreliable information fairly be the predictor of anything?

A 2002 study by the Consumer Federation of America estimated that tens of millions of Americans are unfairly penalized for incorrect information in their credit reports. More recently, a 2004 study by the U.S. Public Interest Research Group found that one in four credit reports contained errors serious enough to cause consumers to be denied credit, housing, or even a job.

The answer to the question “how can unreliable information fairly be the predictor of anything” comes in two parts:

First, perfectly reliable information isn’t normally found in the real world. If we want to use information, we have to accept this lack of perfection, provide a means to offer corrective action when imperfection is discovered, and move one with our lives.

Second, information doesn’t have to be perfect to have meaning, in aggregate. Cleaner data is certainly more useful, and can serve as the foundation for better models…but messy data can still be meaningful as long as the users of that data allow for the extra noise in the design of their model.

If concerns about credit data being wrong is the real issue here, the answer is to seek legislative and regulatory remedies to encourage the credit bureaus and their subscribers to be more dilligent about accuracy, rather than in banning one use of the data.

After all, banning credit scoring won’t do anything to fix the alleged errors that potentially cause consumers to pay higher interest rates or have loans denied.

I’m not entirely sure about the accuracy of the PIRG study cited, which brings us to my other issue with the column-writer:

The narrator simply states that a person’s credit score demonstrates their likelihood of making an insurance claim. This assertion has never been proven; moreover, as long as the underlying data is suspect, it can never be proven.

The information is there and available to anyone caring enough to do a simple Google search. For example, see these studies by by Epic Consulting (report, appendices) and the University of Texas (report).

USA Today is carrying an article today highlighting Measure 42 in Oregon.

On Nov. 7, Oregonians will become the first voters in the USA to decide whether to bar insurers from setting premiums based on such factors as credit history, debt load and bill-paying habits.

The insurance industry, which opposes the measure, is pumping millions of dollars into an ad campaign to defeat it. The outcome will be closely watched by other states that could come under pressure to take similar steps if the Oregon ballot measure succeeds.

That sets the general tone of the article, which seems decidedly biased in favor of Measure 42.

There’s two passages in particular that merit comment:

The industry argues that eliminating credit-based scoring would likely mean that people with good credit would end up paying higher insurance rates. But [Consumers Union attorney] Garcia notes that in California, insurance rates have dropped since the use of credit scores was banned.

The thing is…credit scoring has never been permitted in California auto insurance rates, under Prop 103. Recent rate drops have been more a result of regulatory prodding to get the industry to recognize recent trends and reduce rates despite their reluctance to do so in a challenging regulatory environment.

Insurers also argue that people with low credit scores are likelier to file insurance claims. “People who manage their finances well tend to also manage other important aspects of their lives responsibly, such as driving a car,” the Insurance Information Institute says.

Consumers Union says there’s no proof of that. A review of how credit scores are used to set rates in Texas found that the scores have more to do with economic status than with personal responsibility, says Birny Birnbaum, a former Texas insurance regulator who is executive director of the Center for Economic Justice, a consumer advocacy group.

The correlation between scoring and future losses has been demonstrated in hundreds of rate filings around the country and several published studies, including this one commissioned by the Texas Department of Insurance and performed by the University of Texas.

Sister papers Albany Democrat-Herald and Corvallis Gazette-Times have chimed in similarly on Measure 42.

Quoting the Democrat-Herald:

Reject Measure 42, which would bar insurance companies from using credit scores as part of their determination of risk and thus rates. The measure could result in higher rates for lots of people, and there are better ways of regulating insurance rates to make them fair.

Judging by a letter in yesterday’s Salem Statesman Journal, someone gets it on scoring:

Instead of banning using credit information, instead give the voters the tools to let the public decide — force the insurance companies to divulge whether they use credit information in setting rates — and what that information is. Then let the market decide if they approve of its use or not, one person at a time.

As much as I hate to see it happen, the following excerpt of a post at BlueOregon seems to be the prevailing attitude on Measure 42:

I got your back on this one, Bill, but this is it.

Never again. Understand? I voted for Measure 42, I’ve advocated strongly for it, but I’m never stepping up for you again. I’m disgusted to be doing it now, but M42 is good law despite your slimy hand on it.[...]

Bill, you are a thief, a cheat and a liar. Somehow you’ve done one good thing here, and I’ve voted for it. Don’t read support for your shitwad organization into it, Bill, because that would be as stupid as your attempts to get away with violating election laws. When it comes to Bill Sizemore, I support one thing and one thing only: Retirement.

Yes on M42. No on Bill Sizemore.

So much for the foes of Measure 42’s strategy of turning the issue into a referendum on Sizemore.

I found two more published recommendations on how to vote regarding Measure 42. The Portland Mercury endorses Measure 42, while the Eugene Register-Guard advises voting against measure 42.

Both of them include a comment that merits a response. From the Register-Guard:

But insurance premiums should be based on drivers’ safety records, not whether they [...] choose to use the insurance policies that they’re paying for.

That’s a demonstrably bad bit of logic.

Consider — should a person who has a higher deductible pay the same for coverage as a person who has a low deductible? How about the owner of an expensive-to-repair vehicle versus the owner of a cheap car? Or, why should a person who buys a homeowners policy to protect him/herself from disaster subsidize the individual who uses his/her policy to fund routine maintenance?