I continue to be amazed by the number of negative knee-jerk reactions to credit scoring without any substantive evidentiary support. Credit scores contain no information about race or income levels. It is simply the result of broad-based comparison of claim experience to credit scores that revealed a STATISTICAL CORRELATION between lower scores and higher claims experience. A statistical correlation is simply a mathmatical outcome, it does not identify a cause and effect (Studies show that when it is raining 98% of the people with umbrellas will open them. If 98% of the people open their umbrellas, it will not rain–nevertheless, statistical probability is that when 98% of umbrellas are open, it is safe to bet it’s raining!) Why do companies like credit scoring? A couple of reasons. First, it is the most accurate statistical correlation available, i.e. better than age, driving record, marital status etc. (this is a relative thing–Let’s say age has an 8% accuracy a s predictor and credit scoring 12%, that is a 50% improvement, good by any standard.) Second, it is fast and convenient. With a computer and your SSN, a company can generate a quote on line in minutes, if not seconds. This greatly facilitates the sales process particularly on the internetsales and agent sales. This convenience should result in more competitive rates by lowering sales costs and increasing predictability.
Don’t like credit scoring? Don’t just play the race card. If it is half as bad as suggested, there should be plenty of empirical evidence with with which to back up your claim of discrimination. Go find it and you will get a lot more respect for your position than from whining
let’s see, i’m a white, female (single), low credit score, but great insurance history. if my current carrier decides to hike my rates that much, i would go shopping…just like i did the first time when i realized i was overpaying at state farm.
i originally had the knee jerk reaction, and still don’t completely agree with using credit scoring for AUTO INSURANCE, but at least I can understand that my CREDIT SCORE DOES NOT MAKE UP 100% of my premium.
but, in my opinion, (and this is purely for conversations sake), isn’t that like being charged twice for the same crime. i messed up with credit in college, i have definitely paid the price, now i could potentially be “charged” AGAIN for it by having my insurance go up.
either way…i won’t complain too much since it’s not 100% of the premium.
progressive insurance gave a presentation when credit scoring first came out and they showed graphs detailing the correlation between credit scores and accident ratios. it was impressive and it showed that credit scores ARE AN ACCURATE predictor of loss. there is no dispute on this fact. what they did not show was that the statistical graph was identical to the graph showing the correlation between the number of prior tickets and the probability of future accidents. so why duplicate the underwriting? in california ins. companies cannot use credit scoring for auto rating due to proposition 103 restrictions. what they can do, however, is restrict the monthly pay schedule, thus eliminating their undesirables.
All you agents/insurance companies can use any babble to say that credit scoring is a good tool in factoring insurance premiums but everyone knows behind the insurance companies smoke screens it is just a way to get higher premiums from those who can least afford it. Don’t compare a credit card company using scoring to choose a percentage rate, a credit card is something you CHOOSE and insurance is something you are REQUIRED to have. It is just another way for the insurance industry to beat down the poor, and sorry but race IS a factor and it is sickening that the insurance industry is allowed to get away with this!
No matter what your opinions are on this subject, I have a feeling if Credit does become a factor for premiums in all states, I bet you see a lot more uninsured drivers out there.
Credit scores don’t measure your ability to live within your means. Credit scores reflect how well you manage CREDIT–not income–and work on certain assumptions–including that all the info in them is correct. I know many people out there who have credit scores that look great–because they borrow from one source to pay off another, use balance transfers to move debts to cards w/introductory rates, etc–and while their scores may be temporarily high, in the end it always collapses on them. And when they start getting hounded by bill collectors, they are more likely to not pay things like insurance, because insurance companies just cancel them–we don’t take them to court. I’ve been driving over 25 years, I’ve never had a ticket, the only accident I ever had–20 yrs ago–was 100% the other person’s fault, and I’ve had one claim for a windshield in all that time. Do you think I’m a bad risk? But if my credit score is on the lower side, it will affect my rate. Also, for most people, if they are looking for insurance, they need it then–if they find out there are mistakes on their credit scores, they don’t have time to work on correcting them before buying. And as far as saying companies have built in ways to account for temp life changes–having worked in UW in the past, I know the way they deal with it is to put you in a higher risk anyway, because they say these life changes may negatively affect the way you drive. Your driving record should be the first and most important item in determining your rate. If they need the info, companies can also tell if a person has a lot of insurance lapses by running their DMV reports, so that could be part of the rating. If someone is new to driving and doesn’t have much of a driving record, then possibly credit scores can be part of the mix, as it may be a more relevant indicator for those drivers than others. But for people with established driving records, credit shouldn’t be an issue.
You have well established credit, and
you have never been late with a payment.
This guarantees that you have a high score – right?
Wrong.
Everyone has seen the incentives to open a new line of credit. Get 10% off your purchases with our card or get 10 cents off per gallon with our card. How many times have any of you taken advantage of these? Did you know that every time you do you actually hurt your credit score?
Then say you close those accounts. CLosing these accounts does not have an immediate impact on your score. It takes up to seven years for those accounts to fall off your credit report.
And there may be another drawback to closing accounts. Let’s say that you have 10 credit cards with a total credit line of $100,000. You only use 3 of the cards and have $30,000 on those three cards. Your total debt percentage is 30% to your limit. Now you close 5 of the unused cards. The percentage goes from 30% to 60%. Another bad indicator.
Now don’t get me wrong, I am actually in favor of credit scoring. What I think needs to be done however is that a better job needs to be done educating the public on what impacts their credit score and the impact that a bad credit score can have on them (and I am not talking about just insurance).
You are correct that we do not CHOOSE to buy insurance. But how could someone’s choice to get a credit card affect anyone but themselves? An over the limit fee does not affect someone else. But an auto accident affects those in ALL vehicles involved in the transaction. If credit card companies can use whatever scoring they want, why not allow insurance companies the same? No one complains when credit card companies raise their rates, why complain about insurance? When was the last time a credit card company went belly up due to its loss ratio? Let’s level the playing field and allow insurance companies to charge a small transaction fee each time you make a change in coverage, add or delete a vehicle or process your renewal and let’s just make those charges transparent for all to see. then you can complain about your rates, the underwriting criteria etc. and maybe you’ll have a valid case…but the insurance company bottom line can be protected and you won’t have to worry whether your rate was too high because of your poor credit or the color of your skin or where you live…charge everyone the same rate for coverage but allow several add ons; if banks and credit card companies no longer rely on making loans to make money, why should insurance companies only make money on premiums?
Here’s something I can’t figure out. All the people that claim this type of stuff is a scam and “is just another way for the insurance industry to beat down the poor” and take advantage of the “poor” or a ceratin race, etc… this does not make sense to me. Logically, if you wanted to take advantage of someone or scam someone, wouldn’t you go after the people that have the most money (i.e. the wealthy)?
Come on, use a little logic here. I highly doubt this is a scam because the industry would be scamming the wrong people. Do you really think executives sit around in a room and try to come up with ways of screwing the poor? Give me a break.
Why can’t you admit that a it is possible that wealthy people may be smarter and better at managing risks, better drivers, better handlers of money, etc? No, I’m not saying that this is true 100% of the time. But don’t you think it is a possibility?
Aren’t you satisfied enough by the fact that the wealthy pay nearly 100% of the federal tax? Are they receiving 100% of the benefit of the federal government? Of course not. So now you want the wealthy to pay for your insurance too? What’s next, national health care and a federal welfare program for seniors? Oh wait, we already have the latter.
So… insurance companies only exist to beat down the poor and promote racism? If insurance were a commidity like clothing or strawberries it would make sense to put it on sale occasionally, to try to get as many people to buy it as possible.
But it ain’t like selling widgets. Seeling this product to the wrong guy could mean big problems for the seller, whereas when selling shorts there is no wrong guy. Whether or not it is required is irrelavent, except to say that if it weren’t the same losers with low credit scores would generally be the ones without insurance.
If saying this makes me a racist in your eyes, then so be it, but there ain’t a racist bone in my beautiful body.
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I continue to be amazed by the number of negative knee-jerk reactions to credit scoring without any substantive evidentiary support. Credit scores contain no information about race or income levels. It is simply the result of broad-based comparison of claim experience to credit scores that revealed a STATISTICAL CORRELATION between lower scores and higher claims experience. A statistical correlation is simply a mathmatical outcome, it does not identify a cause and effect (Studies show that when it is raining 98% of the people with umbrellas will open them. If 98% of the people open their umbrellas, it will not rain–nevertheless, statistical probability is that when 98% of umbrellas are open, it is safe to bet it’s raining!) Why do companies like credit scoring? A couple of reasons. First, it is the most accurate statistical correlation available, i.e. better than age, driving record, marital status etc. (this is a relative thing–Let’s say age has an 8% accuracy a s predictor and credit scoring 12%, that is a 50% improvement, good by any standard.) Second, it is fast and convenient. With a computer and your SSN, a company can generate a quote on line in minutes, if not seconds. This greatly facilitates the sales process particularly on the internetsales and agent sales. This convenience should result in more competitive rates by lowering sales costs and increasing predictability.
Don’t like credit scoring? Don’t just play the race card. If it is half as bad as suggested, there should be plenty of empirical evidence with with which to back up your claim of discrimination. Go find it and you will get a lot more respect for your position than from whining
Well then why is everyone complaining???
let’s see, i’m a white, female (single), low credit score, but great insurance history. if my current carrier decides to hike my rates that much, i would go shopping…just like i did the first time when i realized i was overpaying at state farm.
i originally had the knee jerk reaction, and still don’t completely agree with using credit scoring for AUTO INSURANCE, but at least I can understand that my CREDIT SCORE DOES NOT MAKE UP 100% of my premium.
but, in my opinion, (and this is purely for conversations sake), isn’t that like being charged twice for the same crime. i messed up with credit in college, i have definitely paid the price, now i could potentially be “charged” AGAIN for it by having my insurance go up.
either way…i won’t complain too much since it’s not 100% of the premium.
progressive insurance gave a presentation when credit scoring first came out and they showed graphs detailing the correlation between credit scores and accident ratios. it was impressive and it showed that credit scores ARE AN ACCURATE predictor of loss. there is no dispute on this fact. what they did not show was that the statistical graph was identical to the graph showing the correlation between the number of prior tickets and the probability of future accidents. so why duplicate the underwriting? in california ins. companies cannot use credit scoring for auto rating due to proposition 103 restrictions. what they can do, however, is restrict the monthly pay schedule, thus eliminating their undesirables.
All you agents/insurance companies can use any babble to say that credit scoring is a good tool in factoring insurance premiums but everyone knows behind the insurance companies smoke screens it is just a way to get higher premiums from those who can least afford it. Don’t compare a credit card company using scoring to choose a percentage rate, a credit card is something you CHOOSE and insurance is something you are REQUIRED to have. It is just another way for the insurance industry to beat down the poor, and sorry but race IS a factor and it is sickening that the insurance industry is allowed to get away with this!
No matter what your opinions are on this subject, I have a feeling if Credit does become a factor for premiums in all states, I bet you see a lot more uninsured drivers out there.
Credit scores don’t measure your ability to live within your means. Credit scores reflect how well you manage CREDIT–not income–and work on certain assumptions–including that all the info in them is correct. I know many people out there who have credit scores that look great–because they borrow from one source to pay off another, use balance transfers to move debts to cards w/introductory rates, etc–and while their scores may be temporarily high, in the end it always collapses on them. And when they start getting hounded by bill collectors, they are more likely to not pay things like insurance, because insurance companies just cancel them–we don’t take them to court. I’ve been driving over 25 years, I’ve never had a ticket, the only accident I ever had–20 yrs ago–was 100% the other person’s fault, and I’ve had one claim for a windshield in all that time. Do you think I’m a bad risk? But if my credit score is on the lower side, it will affect my rate. Also, for most people, if they are looking for insurance, they need it then–if they find out there are mistakes on their credit scores, they don’t have time to work on correcting them before buying. And as far as saying companies have built in ways to account for temp life changes–having worked in UW in the past, I know the way they deal with it is to put you in a higher risk anyway, because they say these life changes may negatively affect the way you drive. Your driving record should be the first and most important item in determining your rate. If they need the info, companies can also tell if a person has a lot of insurance lapses by running their DMV reports, so that could be part of the rating. If someone is new to driving and doesn’t have much of a driving record, then possibly credit scores can be part of the mix, as it may be a more relevant indicator for those drivers than others. But for people with established driving records, credit shouldn’t be an issue.
Short lesson on Credit Scoring…
You have well established credit, and
you have never been late with a payment.
This guarantees that you have a high score – right?
Wrong.
Everyone has seen the incentives to open a new line of credit. Get 10% off your purchases with our card or get 10 cents off per gallon with our card. How many times have any of you taken advantage of these? Did you know that every time you do you actually hurt your credit score?
Then say you close those accounts. CLosing these accounts does not have an immediate impact on your score. It takes up to seven years for those accounts to fall off your credit report.
And there may be another drawback to closing accounts. Let’s say that you have 10 credit cards with a total credit line of $100,000. You only use 3 of the cards and have $30,000 on those three cards. Your total debt percentage is 30% to your limit. Now you close 5 of the unused cards. The percentage goes from 30% to 60%. Another bad indicator.
Now don’t get me wrong, I am actually in favor of credit scoring. What I think needs to be done however is that a better job needs to be done educating the public on what impacts their credit score and the impact that a bad credit score can have on them (and I am not talking about just insurance).
You are correct that we do not CHOOSE to buy insurance. But how could someone’s choice to get a credit card affect anyone but themselves? An over the limit fee does not affect someone else. But an auto accident affects those in ALL vehicles involved in the transaction. If credit card companies can use whatever scoring they want, why not allow insurance companies the same? No one complains when credit card companies raise their rates, why complain about insurance? When was the last time a credit card company went belly up due to its loss ratio? Let’s level the playing field and allow insurance companies to charge a small transaction fee each time you make a change in coverage, add or delete a vehicle or process your renewal and let’s just make those charges transparent for all to see. then you can complain about your rates, the underwriting criteria etc. and maybe you’ll have a valid case…but the insurance company bottom line can be protected and you won’t have to worry whether your rate was too high because of your poor credit or the color of your skin or where you live…charge everyone the same rate for coverage but allow several add ons; if banks and credit card companies no longer rely on making loans to make money, why should insurance companies only make money on premiums?
Here’s something I can’t figure out. All the people that claim this type of stuff is a scam and “is just another way for the insurance industry to beat down the poor” and take advantage of the “poor” or a ceratin race, etc… this does not make sense to me. Logically, if you wanted to take advantage of someone or scam someone, wouldn’t you go after the people that have the most money (i.e. the wealthy)?
Come on, use a little logic here. I highly doubt this is a scam because the industry would be scamming the wrong people. Do you really think executives sit around in a room and try to come up with ways of screwing the poor? Give me a break.
Why can’t you admit that a it is possible that wealthy people may be smarter and better at managing risks, better drivers, better handlers of money, etc? No, I’m not saying that this is true 100% of the time. But don’t you think it is a possibility?
Aren’t you satisfied enough by the fact that the wealthy pay nearly 100% of the federal tax? Are they receiving 100% of the benefit of the federal government? Of course not. So now you want the wealthy to pay for your insurance too? What’s next, national health care and a federal welfare program for seniors? Oh wait, we already have the latter.
So… insurance companies only exist to beat down the poor and promote racism? If insurance were a commidity like clothing or strawberries it would make sense to put it on sale occasionally, to try to get as many people to buy it as possible.
But it ain’t like selling widgets. Seeling this product to the wrong guy could mean big problems for the seller, whereas when selling shorts there is no wrong guy. Whether or not it is required is irrelavent, except to say that if it weren’t the same losers with low credit scores would generally be the ones without insurance.
If saying this makes me a racist in your eyes, then so be it, but there ain’t a racist bone in my beautiful body.