I dont’ remember who said it, but if I have insurance, why would I ever pay out of pocket for something my policy would cover? Then why would I need insurance at all????
All conpanies do not use credit scoring for some reason. Something no one has mentioned is that credit scoring is not universally applied. Each company receives approval for the way they will apply the credit score unless I am very mistaken.
The risk of a driver is not just in how he drives, but in his ability not to file claims. You are correct that a person with good credit might be a bad driver. That doesn’t mean that the person will file claims.
Not even considering the physical damage portion on the insured’s own car, let’s look at liability. If a driver has a minor fender bender requiring less than $1000 to fix, if that person chooses to pay out of pocket instead of filing the claim, they are “owning up to their responsibility.” In fact they may be owning up more than the person who would rather file it on their insurance. That’s $1000 straight out of the insured’s pocket instead of pawning it off on an insurance company because they’re big and can afford a $1000 payment.
If this person gets into several minor $1000 or less fender benders, does that make them a bad driver? Yes. Does that make them a bad risk if they pay for all of them? Maybe. They may be a bad risk for the big payout because eventually that minor fender bender may become a big liability claim. But for small claims, they’re a great risk because the insurance company doesn’t have to pay out.
Ideally that person would be charged a higher amount for all of the accidents that reflect their poor driving record, but not as high as someone who files all of the claims which would be discounted based on credit.
I think one thing I haven’t seen in any post is the fact that good insurance scores may actually be a good predictor of your driving habits. The truth is, people generally do not act all that differently in different aspects of their lives. If you are responsible with your money, is it that far of a stretch to believe you will be responsible with your driving?
Yes, some people who are responsible financially will be bad drivers, but on average this does not appear to be true. This does not mean that some of your best insurance scores will not file claims. It does mean that on average they file fewer claims than a bad insurance score. This is not just because they don’t file them, some of it is because they simply don’t have claims to file.
Also, simply because you have a lot or a little money does not mean you are a good or bad insurance score. The scores measure how you use your money, not how much of it you have. I am not rich, but I have a very good insurance score because I act responsibly with the money I do have. Many wealthy people have poor insurance scores because they overextend their finances.
As for the idea that insurance score only measures whether you will file a claim or not, I doubt this is true. Yes, people with better scores file fewer claims. But they also have better loss experience on liability, which are claims filed against them. In addition, I do not think the simple filing of a claim can account for the experience difference between the best and worst scores, which is dramatic.
Having worked with scoring, I can tell you that there are definitely two sides to this story.
First, Scoring is a valid predictor. But it is just that, a predictor. Not everyone with eight moving violations is going to have an accident. The same is true for those individuals with low scores… not everyone is going to have an accident. And while we can easily lump those people with multiple violations into the “Bad Risk” group, the same can not be said for those with bad credit scores.
Part of the problem is that we understand moving violations. Those individuals got caught by a law enforcement agency and got a ticket. We don’t understand credit scores. We don’t know what goes into a credit score, we don’t know how to improve our credit score and we sure don’t understand how there can be a relationship between credit scores and driving patterns.
To make matters worse, there are three primary algorithms used to generate a credit score and each of these algorithms look at the information in the credit history differently. It makes it even more difficult to explain credit scoring when a person scores 667 in one company and 845 in another (which isn’t as far fetched as it may sound).
So yes, credit scoring is a valid tool that helps lower premiums for more people than it raises premiums for. However I believe that even though we can prove the benefits of scoring, unless we as an industry begin to use the same scoring algorithms and can help our insured’s understand what helps and hurts their scores, it will be a tool that ultimately will be eliminated.
Now that the issue of integrity has been brought up, let me get on my soap box… for an industry which necessarily has to rely on integrity and honesty, I found that these values are hard to find in people in this industry. What matters most is the bottom line. the pure loss ratio, the combined ratio, the ROI, these are the things that make business profitable….and it affects everyone. so I have to accept that credit scoring is based on valid methodologies, on valid statistics and assumptions. But when these same insurance professionals play in a “just-for-fun” golf league, the need to win at all costs is borne out by their willingness to pad their scorecards…the sandbaggers!” and that is why our industry is always going to be questioned and ridiculed and vilified….as well as any of the tools used to set rates….
so if we want fair, then let’s not make a a counted incident when we hit animals! we can’t control mother nature, we already remove hail dmg and other similar claims. again, the insurance industry can claim anything for rates to climb. if i have a parking claim, and yet because i filed to get my vehicle fixed that might be a bad thing because my credit says HEY, I am going to file a CLAIM! where is the fairness in that? simply put, it’s not a fair way of solving the issue of what kind of risk that driver is — keyword: DRIVER not his credit or the ability to file claims based on damages. i truly believe we try sometimes to make things more than they are. or easily blame the other folks instead of ourselves when we are truly at fault.
Wudchuck sounds like a 6 year old. Grow up. Life isn’t fair, not at least in the illogical way you present your arguements. Credit scoring is proven to reflect the likelihood of filing claims over large groups. Even someone of your limited intelligence should be able to understand a statistical fact. Study after study (independent studies) show this as a fact. Why shouldn’t a company looking to compete for the best and most profitable classes of business use one of the many statistical methods of going for that business? Hundreds of companies are out there competing, choose one you like, or hate the least in your case.
By now you should have all figured out that “Nobody important” is the all knowing expert as evidenced by his view that anyone who disagrees with him has limited intelligence or is ignorant.
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insurance industry,, I guess I shouldn’t care, until my car is hit by an uninsured motorist . YOU CAN PAY FOR UNINSURED MOTORIST BUT ITS A BIG JOKE,
I dont’ remember who said it, but if I have insurance, why would I ever pay out of pocket for something my policy would cover? Then why would I need insurance at all????
All conpanies do not use credit scoring for some reason. Something no one has mentioned is that credit scoring is not universally applied. Each company receives approval for the way they will apply the credit score unless I am very mistaken.
The risk of a driver is not just in how he drives, but in his ability not to file claims. You are correct that a person with good credit might be a bad driver. That doesn’t mean that the person will file claims.
Not even considering the physical damage portion on the insured’s own car, let’s look at liability. If a driver has a minor fender bender requiring less than $1000 to fix, if that person chooses to pay out of pocket instead of filing the claim, they are “owning up to their responsibility.” In fact they may be owning up more than the person who would rather file it on their insurance. That’s $1000 straight out of the insured’s pocket instead of pawning it off on an insurance company because they’re big and can afford a $1000 payment.
If this person gets into several minor $1000 or less fender benders, does that make them a bad driver? Yes. Does that make them a bad risk if they pay for all of them? Maybe. They may be a bad risk for the big payout because eventually that minor fender bender may become a big liability claim. But for small claims, they’re a great risk because the insurance company doesn’t have to pay out.
Ideally that person would be charged a higher amount for all of the accidents that reflect their poor driving record, but not as high as someone who files all of the claims which would be discounted based on credit.
I think one thing I haven’t seen in any post is the fact that good insurance scores may actually be a good predictor of your driving habits. The truth is, people generally do not act all that differently in different aspects of their lives. If you are responsible with your money, is it that far of a stretch to believe you will be responsible with your driving?
Yes, some people who are responsible financially will be bad drivers, but on average this does not appear to be true. This does not mean that some of your best insurance scores will not file claims. It does mean that on average they file fewer claims than a bad insurance score. This is not just because they don’t file them, some of it is because they simply don’t have claims to file.
Also, simply because you have a lot or a little money does not mean you are a good or bad insurance score. The scores measure how you use your money, not how much of it you have. I am not rich, but I have a very good insurance score because I act responsibly with the money I do have. Many wealthy people have poor insurance scores because they overextend their finances.
As for the idea that insurance score only measures whether you will file a claim or not, I doubt this is true. Yes, people with better scores file fewer claims. But they also have better loss experience on liability, which are claims filed against them. In addition, I do not think the simple filing of a claim can account for the experience difference between the best and worst scores, which is dramatic.
Having worked with scoring, I can tell you that there are definitely two sides to this story.
First, Scoring is a valid predictor. But it is just that, a predictor. Not everyone with eight moving violations is going to have an accident. The same is true for those individuals with low scores… not everyone is going to have an accident. And while we can easily lump those people with multiple violations into the “Bad Risk” group, the same can not be said for those with bad credit scores.
Part of the problem is that we understand moving violations. Those individuals got caught by a law enforcement agency and got a ticket. We don’t understand credit scores. We don’t know what goes into a credit score, we don’t know how to improve our credit score and we sure don’t understand how there can be a relationship between credit scores and driving patterns.
To make matters worse, there are three primary algorithms used to generate a credit score and each of these algorithms look at the information in the credit history differently. It makes it even more difficult to explain credit scoring when a person scores 667 in one company and 845 in another (which isn’t as far fetched as it may sound).
So yes, credit scoring is a valid tool that helps lower premiums for more people than it raises premiums for. However I believe that even though we can prove the benefits of scoring, unless we as an industry begin to use the same scoring algorithms and can help our insured’s understand what helps and hurts their scores, it will be a tool that ultimately will be eliminated.
Now that the issue of integrity has been brought up, let me get on my soap box… for an industry which necessarily has to rely on integrity and honesty, I found that these values are hard to find in people in this industry. What matters most is the bottom line. the pure loss ratio, the combined ratio, the ROI, these are the things that make business profitable….and it affects everyone. so I have to accept that credit scoring is based on valid methodologies, on valid statistics and assumptions. But when these same insurance professionals play in a “just-for-fun” golf league, the need to win at all costs is borne out by their willingness to pad their scorecards…the sandbaggers!” and that is why our industry is always going to be questioned and ridiculed and vilified….as well as any of the tools used to set rates….
so if we want fair, then let’s not make a a counted incident when we hit animals! we can’t control mother nature, we already remove hail dmg and other similar claims. again, the insurance industry can claim anything for rates to climb. if i have a parking claim, and yet because i filed to get my vehicle fixed that might be a bad thing because my credit says HEY, I am going to file a CLAIM! where is the fairness in that? simply put, it’s not a fair way of solving the issue of what kind of risk that driver is — keyword: DRIVER not his credit or the ability to file claims based on damages. i truly believe we try sometimes to make things more than they are. or easily blame the other folks instead of ourselves when we are truly at fault.
Wudchuck sounds like a 6 year old. Grow up. Life isn’t fair, not at least in the illogical way you present your arguements. Credit scoring is proven to reflect the likelihood of filing claims over large groups. Even someone of your limited intelligence should be able to understand a statistical fact. Study after study (independent studies) show this as a fact. Why shouldn’t a company looking to compete for the best and most profitable classes of business use one of the many statistical methods of going for that business? Hundreds of companies are out there competing, choose one you like, or hate the least in your case.
By now you should have all figured out that “Nobody important” is the all knowing expert as evidenced by his view that anyone who disagrees with him has limited intelligence or is ignorant.