Hurrah! For once a discussion stayed on track. I use these comments to educate my coworkers and as background for discussions in meeting. My thanks to all of you for your well- thought-out arguments, without digression and without vitrolic tangents.
I’ve read a lot of good comments in this discussion. We have not touched on the relationship of credit scores and insurance fraud.
Credit scoring works but, we must be able to convey this to our customers. I bring to their attention several facts that makes sense to them. First, the use of credit scores with investigating fraudulent claims. I bring to their attention that in my 28 years as an agent that I have had about a dozen customers convicted of insurance fraud. Three of burning their homes and the remainder being various auto claims. Mind you – these were only the ones convicted as many more were suspects. In each and every case, the first indication of fraud to the investigators was credit scores. Their credit scores were so bad that those insureds may commit insurance fraud to get money from their polices. The economic impact of those three house claims alone would have been greater than the cost to replace 100 average roofs from a hail storm. This puts it in terms that the customer can relate too. After hearing this explanation most customers tend to be more open minded about accepting credit as a cost factor in their insurance premium. Not convinced but, at least more open minded to hear more.
Second, my customers with very good credit scores tend to maintain the homes and autos better – particuarly their homes. I have a balanced racially mixed business of whites, hispanics, blacks and asians. Many of my customers with the best credit scores live in the more economically depressed areas of town – Dallas/FW metro-plex. They may live there but, their homes are very well kept, they pay their premiums on time and almost never file a claim.
Bill mentioned the problem that I run into – different carriers using different credit scoring models. Do we continue to allow carriers to use different scoring models or should only one model be approved for carriers to use? The different credit scoring models is what makes our customers angry and push legislators to ban credit scoring. All carriers use the same loss records but, are allowed to weigh them differently. Actuaries may need to agree on one model then, allow carriers to weigh them differently. I think this may help gain the support of many legislative representatives.
If we want to continue to use credit scoring then, we must be able to make a good case with our customers. If customers understand the accuracy of credit scoring they won’t be pressing their local legislators to pass laws banning its use.
Just a question (because not all of us with bad credit scores care to do something fraudulent…I for one, don’t care to go to jail or pay heavy fines….in fact, i would be scared to file a claim for fear people would say it was fraud due to my poor credit, but anywho…)
first off, i’m working my butt off to get my credit fixed. so it’s low now, but on the way up. but lets say, for arguments sake, that it stays bad over the course of the next 10 years. but on the other hand, in regards to my auto ins, i’ve had no claims, no accidents, no tickets, etc…is it possible to go into your agent’s office and say, “look, my credit sucks, but i take care of my car, i drive safely, wear seatbelt, don’t speed, etc…is there anything you can do about my rate?”
meaning, if you are a good customer, that doesn’t file claims and always pays premium on time, but has bad credit, once you’ve proven yourself as a worthy customer, will they rate you as an individual as opposed to putting you in a group of people?
I really hope that makes sense! :)
Thanks to those who answer, i’m neither here nor there on using credit scoring, i just want to know the ins-and-outs!
The credit score alone will not give you a high insurance premium. It depends on the company’s rating and how much it is weighted on credit. Also, your “insurance score” is not solely your credit in all cases. If everything else looks great, while your credit score will still be an issue, it doesn’t mean that it will make up all of your rate. All these things together (# of vehicles, limits, claims experience, age, sex, location, credit, etc.) all go into making the most accurate rate. Again, that is just a small sampling of what makes the rate, and I am by no means an expert on this subject.
That actually helps Dustin…i think the reason people get so “scared” when it comes to using credit scoring is that they believe it’s a driving factor….that bad credit will result in a high rate, irregardless….
Nebraskan is correct in that credit is only one factor in rating. I support the use of credit but, think it has too much weight with some carriers. Using insurance fraud convictions as an example is simply a conversational tool that I use with customers in order to bring some validity to the use of credit. Please remember that those customers that were convicted had REALLY BAD CREDIT SCORES!!! I remember when carriers would decline a risk altogether based solely on credit scores.
I have difficulty in accepting some rates on customers with average credit in that they are obviously not fraud candidates. I don’t think even the best actuaries have developed good scoring models – fair at best! I think that we need to provide adequate explanation to our customers and legislators that the continued use of credit rating has merit.
I have many customers who have a low credit score strictly because they have health problems and many medical bills.
Is it fair to raise their rates, when they may have never had an accident because of these medical bills?
This why credit should not be a sole determining factor. There are other older people who have never had a credit card or anything like that and have little to no credit. Where I used to work, they would not get the worst score, but certainly not the best either. This is why there is a multi-faceted rating system, so that their age and driving ability can off set their negative credit scoring. It still goes into painting the whole picture, and while it is not the best way to rate, it is the best right now.
Why NOT JUST RATE IT THE WAY THEY USED TO.
based on losses incurred, driving record,
and accident history. Its just a deliberate action on the part of the insurance industry to raise rates.
Deliberate? If you simply look at the people whose rates went up, then rating on accidents and driving history was a deliberate attempt to raise rates FOR THOSE WHO HAD A BAD DRIVING RECORD. The insurance company tries to obtain the correct rate on a risk, and in many cases (obviously there are anamolies) credit is also an indicator of risk. In the case of your elderly insureds, their bad credit does not necessarily indicate an increase of risky behavior; however, I can see where there is a correlation between risk takers with credit and money and risk takers on the road. Not to mention, lower credit could indicate a morale hazard and simply not caring about the property. Again, I don’t want to characterize everyone, but credit is a way to rate for these other areas. You may say that if they take risks driving, then they will have a bad driving record, but that might not be the case. They may not have been caught, and might not be until that million dollar liability lawsuit. Credit fills in the gaps where driving record does not. Truthfully, how many times have you sped (enough over to get a ticket) and not gotten a ticket?
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Hurrah! For once a discussion stayed on track. I use these comments to educate my coworkers and as background for discussions in meeting. My thanks to all of you for your well- thought-out arguments, without digression and without vitrolic tangents.
I’ve read a lot of good comments in this discussion. We have not touched on the relationship of credit scores and insurance fraud.
Credit scoring works but, we must be able to convey this to our customers. I bring to their attention several facts that makes sense to them. First, the use of credit scores with investigating fraudulent claims. I bring to their attention that in my 28 years as an agent that I have had about a dozen customers convicted of insurance fraud. Three of burning their homes and the remainder being various auto claims. Mind you – these were only the ones convicted as many more were suspects. In each and every case, the first indication of fraud to the investigators was credit scores. Their credit scores were so bad that those insureds may commit insurance fraud to get money from their polices. The economic impact of those three house claims alone would have been greater than the cost to replace 100 average roofs from a hail storm. This puts it in terms that the customer can relate too. After hearing this explanation most customers tend to be more open minded about accepting credit as a cost factor in their insurance premium. Not convinced but, at least more open minded to hear more.
Second, my customers with very good credit scores tend to maintain the homes and autos better – particuarly their homes. I have a balanced racially mixed business of whites, hispanics, blacks and asians. Many of my customers with the best credit scores live in the more economically depressed areas of town – Dallas/FW metro-plex. They may live there but, their homes are very well kept, they pay their premiums on time and almost never file a claim.
Bill mentioned the problem that I run into – different carriers using different credit scoring models. Do we continue to allow carriers to use different scoring models or should only one model be approved for carriers to use? The different credit scoring models is what makes our customers angry and push legislators to ban credit scoring. All carriers use the same loss records but, are allowed to weigh them differently. Actuaries may need to agree on one model then, allow carriers to weigh them differently. I think this may help gain the support of many legislative representatives.
If we want to continue to use credit scoring then, we must be able to make a good case with our customers. If customers understand the accuracy of credit scoring they won’t be pressing their local legislators to pass laws banning its use.
Just a question (because not all of us with bad credit scores care to do something fraudulent…I for one, don’t care to go to jail or pay heavy fines….in fact, i would be scared to file a claim for fear people would say it was fraud due to my poor credit, but anywho…)
first off, i’m working my butt off to get my credit fixed. so it’s low now, but on the way up. but lets say, for arguments sake, that it stays bad over the course of the next 10 years. but on the other hand, in regards to my auto ins, i’ve had no claims, no accidents, no tickets, etc…is it possible to go into your agent’s office and say, “look, my credit sucks, but i take care of my car, i drive safely, wear seatbelt, don’t speed, etc…is there anything you can do about my rate?”
meaning, if you are a good customer, that doesn’t file claims and always pays premium on time, but has bad credit, once you’ve proven yourself as a worthy customer, will they rate you as an individual as opposed to putting you in a group of people?
I really hope that makes sense! :)
Thanks to those who answer, i’m neither here nor there on using credit scoring, i just want to know the ins-and-outs!
The credit score alone will not give you a high insurance premium. It depends on the company’s rating and how much it is weighted on credit. Also, your “insurance score” is not solely your credit in all cases. If everything else looks great, while your credit score will still be an issue, it doesn’t mean that it will make up all of your rate. All these things together (# of vehicles, limits, claims experience, age, sex, location, credit, etc.) all go into making the most accurate rate. Again, that is just a small sampling of what makes the rate, and I am by no means an expert on this subject.
That actually helps Dustin…i think the reason people get so “scared” when it comes to using credit scoring is that they believe it’s a driving factor….that bad credit will result in a high rate, irregardless….
Nebraskan is correct in that credit is only one factor in rating. I support the use of credit but, think it has too much weight with some carriers. Using insurance fraud convictions as an example is simply a conversational tool that I use with customers in order to bring some validity to the use of credit. Please remember that those customers that were convicted had REALLY BAD CREDIT SCORES!!! I remember when carriers would decline a risk altogether based solely on credit scores.
I have difficulty in accepting some rates on customers with average credit in that they are obviously not fraud candidates. I don’t think even the best actuaries have developed good scoring models – fair at best! I think that we need to provide adequate explanation to our customers and legislators that the continued use of credit rating has merit.
I have many customers who have a low credit score strictly because they have health problems and many medical bills.
Is it fair to raise their rates, when they may have never had an accident because of these medical bills?
This why credit should not be a sole determining factor. There are other older people who have never had a credit card or anything like that and have little to no credit. Where I used to work, they would not get the worst score, but certainly not the best either. This is why there is a multi-faceted rating system, so that their age and driving ability can off set their negative credit scoring. It still goes into painting the whole picture, and while it is not the best way to rate, it is the best right now.
Why NOT JUST RATE IT THE WAY THEY USED TO.
based on losses incurred, driving record,
and accident history. Its just a deliberate action on the part of the insurance industry to raise rates.
Deliberate? If you simply look at the people whose rates went up, then rating on accidents and driving history was a deliberate attempt to raise rates FOR THOSE WHO HAD A BAD DRIVING RECORD. The insurance company tries to obtain the correct rate on a risk, and in many cases (obviously there are anamolies) credit is also an indicator of risk. In the case of your elderly insureds, their bad credit does not necessarily indicate an increase of risky behavior; however, I can see where there is a correlation between risk takers with credit and money and risk takers on the road. Not to mention, lower credit could indicate a morale hazard and simply not caring about the property. Again, I don’t want to characterize everyone, but credit is a way to rate for these other areas. You may say that if they take risks driving, then they will have a bad driving record, but that might not be the case. They may not have been caught, and might not be until that million dollar liability lawsuit. Credit fills in the gaps where driving record does not. Truthfully, how many times have you sped (enough over to get a ticket) and not gotten a ticket?