Society dictates right & wrong. And charging the poor more is just wrong. That\’s why the New Jersey Assembly, the Senate & the newspapers are in an uproar.
The previous emailer does not know or understand what he/she is talking about & perhaps needs to actually review the testimonies about credit scoring vs education/occupation.
All testimonies & reports show Credit scoring & rating per education/occupation are unrelated. \”Credit scoring\” could never be tied to \”economic well-being\”. Education & occupation are tied.
As far as using these factors in \”insurance scoring\”: A recent Star Ledger showed idential males, idential cars, and idential situations except one was a lawyer & the other uneducated. Guess who paid $1000. more car insurance premium?
If you think that charging the poor is good thing, then I think you will be visited by three ghosts on Christmas Eve.
(Oh if you are trying to compare Mass to NJ, then please remember that NJ has the rates in the nation.)
Some NJ insurers & some agency associations have taken positions AGAINST the use of occupation & education. One direct writer testified before the NJ Senate AGAINST the use of occ & ed in tier rating.
The key issue in these cases seems to me to be around explainability. We must be able to explain how an analytic model works in order for legislators and the public to accept it as a way of predicting risk and we must be clear when we think there is a causal link and when we think it is simply a good corollary. I wrote about this before – http://edmblog.fairisaac.com/weblog/2006/05/explaining_anal.html
Education & occupation are directly related to economic well-being. Basing rates on those factors discriminates against the poor while favoring the wealthy.
J — you couldn\’t be more wrong on this issue. Insurance companies use dozens of \”rating factors\” to determine rate. In the old days, policies in the Preferred markets (i.e. the best customers) subsidized folks with poorer driving records. The reason this happened is because insurance carriers had very little data to use that separated the better risks from the poorer risks. Independent agents gave a tier recommendation for customers, and assuming the driving record wasn\’t too bad, the insurance carrier put the customer in the market chosen by the agent.
Then came the advent of credit scoring. The analytics show a clear and direct correlation between driving record and the likelihood of accidents (for auto policies) and the frequency of claims (for homeowner\’s).
In the new era of insurance scoring, carriers have dozens of of factors to use; everything from age, education, occupation, credit scoring to claims activity and where the vehicle is garaged. As a result, areas where local and state governments stay out of the insurance market, customers have the lowest rates they\’ve ever had.
Remember when you were in school, and you had a teacher who took relatively few grades over the course of the quarter/semester/year? If one of your scores was low, it would have a serious effect on your grade at the end of the year. However, if you have a teacher who takes dozens of grades and averages them out, having one low score mixed in there isn\’t going to hurt you.
The markets that have the highest average prices are those with Departments of Insurance that heavily regulate markets. When you allow natural market competition to influence the market, the customer always wins. There are hundreds of empirical examples of how free-market capitalism always beats government control.
If you want insurance-specific examples, take a look at the state of MA. Most insurers have completely pulled out of the state and premiums are ridiculously high, all because of the way their government has tried to \”regulate\” lower prices.
People who tell you that education and occupation information is \”targeting the poor,\” are either a) ignorant of the way economics works or b) deliberately inciting classism by using rich/poor rhetoric, usually with a polital spin. Most of the talking heads you see spouting off about big, evil insurance companies are looking for a political boon from their consituents, most of which fall into category a above.
Think about it logically — would you rather be graded with 4 \”test scores,\” or would you rather have 30? It\’s an easy choice, in my opinion.
I just want to know where was all of the hoopla when Insurance companies began using gender as a rating tool. The same types of analytical data were used when determining that a male driver is more likely to have an accident. Where was the Senate and uproar then?
…sorry to burst your idealistic bubbles,
but insurance cos. do not sing \”kumbaya\” in the board rooms.
Dig out your sociology texts from college…deep down you all know there is truly a correlation between socio-economic status and predictability of claims activity.
Why would an insurance company want to discriminate against a certain economic class ? Insurers want to be competitive and profitable. That means they must offer rates low enough to attract customers, but high enough to make a profit. They wouldn\’t want to charge any more than they have to or they won\’t get the business, their competitor will. The argument that it is discriminatory is baseless from a business perspective. The only reason for a business to discriminate against a certain group is if that group\’s costs are higher. If the costs are higher for that group, then it justifies the use of that criteria in setting rates.
As for the comments questioning where was the uproar when gender was used in setting rates, it is my belief that there was no uproar because it was men who got charged higher rates. If the introduction of gender raised women\’s rates more than mens, I think there would have been quite a commotion.
So what you are saying is being uneducated and/or having bad credit means you are of a certain race, color or creed? I don\’t get your correlation. Can you explain? Thanks
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Society dictates right & wrong. And charging the poor more is just wrong. That\’s why the New Jersey Assembly, the Senate & the newspapers are in an uproar.
The previous emailer does not know or understand what he/she is talking about & perhaps needs to actually review the testimonies about credit scoring vs education/occupation.
All testimonies & reports show Credit scoring & rating per education/occupation are unrelated. \”Credit scoring\” could never be tied to \”economic well-being\”. Education & occupation are tied.
As far as using these factors in \”insurance scoring\”: A recent Star Ledger showed idential males, idential cars, and idential situations except one was a lawyer & the other uneducated. Guess who paid $1000. more car insurance premium?
If you think that charging the poor is good thing, then I think you will be visited by three ghosts on Christmas Eve.
(Oh if you are trying to compare Mass to NJ, then please remember that NJ has the rates in the nation.)
Some NJ insurers & some agency associations have taken positions AGAINST the use of occupation & education. One direct writer testified before the NJ Senate AGAINST the use of occ & ed in tier rating.
The key issue in these cases seems to me to be around explainability. We must be able to explain how an analytic model works in order for legislators and the public to accept it as a way of predicting risk and we must be clear when we think there is a causal link and when we think it is simply a good corollary. I wrote about this before –
http://edmblog.fairisaac.com/weblog/2006/05/explaining_anal.html
Education & occupation are directly related to economic well-being. Basing rates on those factors discriminates against the poor while favoring the wealthy.
That is the untold thesis behind the correlation.
J — you couldn\’t be more wrong on this issue. Insurance companies use dozens of \”rating factors\” to determine rate. In the old days, policies in the Preferred markets (i.e. the best customers) subsidized folks with poorer driving records. The reason this happened is because insurance carriers had very little data to use that separated the better risks from the poorer risks. Independent agents gave a tier recommendation for customers, and assuming the driving record wasn\’t too bad, the insurance carrier put the customer in the market chosen by the agent.
Then came the advent of credit scoring. The analytics show a clear and direct correlation between driving record and the likelihood of accidents (for auto policies) and the frequency of claims (for homeowner\’s).
In the new era of insurance scoring, carriers have dozens of of factors to use; everything from age, education, occupation, credit scoring to claims activity and where the vehicle is garaged. As a result, areas where local and state governments stay out of the insurance market, customers have the lowest rates they\’ve ever had.
Remember when you were in school, and you had a teacher who took relatively few grades over the course of the quarter/semester/year? If one of your scores was low, it would have a serious effect on your grade at the end of the year. However, if you have a teacher who takes dozens of grades and averages them out, having one low score mixed in there isn\’t going to hurt you.
The markets that have the highest average prices are those with Departments of Insurance that heavily regulate markets. When you allow natural market competition to influence the market, the customer always wins. There are hundreds of empirical examples of how free-market capitalism always beats government control.
If you want insurance-specific examples, take a look at the state of MA. Most insurers have completely pulled out of the state and premiums are ridiculously high, all because of the way their government has tried to \”regulate\” lower prices.
People who tell you that education and occupation information is \”targeting the poor,\” are either a) ignorant of the way economics works or b) deliberately inciting classism by using rich/poor rhetoric, usually with a polital spin. Most of the talking heads you see spouting off about big, evil insurance companies are looking for a political boon from their consituents, most of which fall into category a above.
Think about it logically — would you rather be graded with 4 \”test scores,\” or would you rather have 30? It\’s an easy choice, in my opinion.
I just want to know where was all of the hoopla when Insurance companies began using gender as a rating tool. The same types of analytical data were used when determining that a male driver is more likely to have an accident. Where was the Senate and uproar then?
Ahem. Um. Insurance=Business.
Business=Profit.
Profit=Stockholders
Stockholders=more profit
…sorry to burst your idealistic bubbles,
but insurance cos. do not sing \”kumbaya\” in the board rooms.
Dig out your sociology texts from college…deep down you all know there is truly a correlation between socio-economic status and predictability of claims activity.
Why would an insurance company want to discriminate against a certain economic class ? Insurers want to be competitive and profitable. That means they must offer rates low enough to attract customers, but high enough to make a profit. They wouldn\’t want to charge any more than they have to or they won\’t get the business, their competitor will. The argument that it is discriminatory is baseless from a business perspective. The only reason for a business to discriminate against a certain group is if that group\’s costs are higher. If the costs are higher for that group, then it justifies the use of that criteria in setting rates.
As for the comments questioning where was the uproar when gender was used in setting rates, it is my belief that there was no uproar because it was men who got charged higher rates. If the introduction of gender raised women\’s rates more than mens, I think there would have been quite a commotion.
Based on what some of you are saying, we might as well include \”race, color, and creed\” into our \”rating tiers\”.
Hey Race,
So what you are saying is being uneducated and/or having bad credit means you are of a certain race, color or creed? I don\’t get your correlation. Can you explain? Thanks