Credit scoring is a deceptive, inaccurate tool used by the Insurance Industry to manipulate several systems. These systems include, but are not limited to, redlining or exclusion of certain classes of consumers from products and services either through complete denial or through discriminatory product pricing; rate manipulation by means of adjusting internal, non regulated, underwriting tiers; and through questionable proprietary secrecy which usurps the consumer’s ability to know or become aware of how they are scored and the accuracy of these scores.
Whom do they prey upon most often?
* Minorities who live in areas designated as low income, high crime, inner city, and poverty prone.
* Poorly educated who do not know how to protect themselves and feel forced to accept the abuse.
* The poor, the ones can least afford to pay higher rates are being driven into the substandard market.
* The Elderly, who have no debt are now penalized for retiring debt free
* Families with large medical debt
* Single mothers
These groups share commonalities. As individuals, they do not have the means by which to defend themselves from this predatory practice. The Insurance Industry knows this and exploits this knowledge to maintain the separation of classes. By continuing the separation, those on the bottom are forced to pay more and subsidize those at the top. Consumers who have no history of claims are forced to pay higher rates simply because they do not possess wealth.
With credit scoring insurance companies can now increase premiums arbitrarily by manipulating the underwriting scoring and tiering. Underwriting, which is not regulated, creates a gray area. By changing the underwriting requirements, consumers can have their rates increased or their policies rejected. This allows the companies to act without regard to regulatory compliance. No oversight, no rate filing with the Rating Commission, simply change the tiering cutoffs and take a rate increase. Additionally, when companies have been asked to show why rates and tiering changes have been made, how they are designed and adjusted, they have refused. They claim their formulas as trade secrets and proprietary intellectual property. When evidence has been presented, which brings to light the discriminatory aspects and the potential illegal act of redlining, companies again refuse to show the methodology claiming the law and regulation allow them to discriminate.
Insurance in this state is compulsary for auto, and required by lending institutions on home mortgages. The legislators and regulators for this state have put all citizens at risk. By allowing the secret models and unregulated changes in underwriting, insurance companies can effectively add a hidden tax and surcharges to every policy issued. Unfair hidden taxation, no representation, stealing from the poor, and failure by the legislative/regulatory bodies to protect the people. History is repeating itself. Over 200 years ago the Revolutionary War was fought to free this country from similar oppressive activities. Over 100 years ago the Civil War was fought to unite the country and help free people from slavery. The insurance companies, with aid from Regulators, are sending us back, again making it legal to own people and hold them hostage. To drive a car it must be insured. To have a mortgage on a home it must be insured. The laws and rules are in place to protect the citizens of this state and the institutions who lend people the money needed to purchase homes. Now these same people are told not only must they be insured, but at whatever price the insurance company demands. Even though the pricing may be excessively high and discriminatory. Those who are less fortunate, minorities and those who have had major upheaval in their lives shall now fall prey to the new â€ŔRobber Barons,†the insurance companies.
The Insurance Industry is guilty of blurring the truth, twisting the facts, and occasionally, outright lying. An investigative report by Channel 7 News from Detroit, Michigan, (http://www.detnow.com/investigations/0310301701.html) revealed some interesting information. The insurance industry was telling lawmakers that 61 percent of the people polled had no problem with the use of credit in rating insurance. Actually, what the industry did, was to take the 44 percent who had no problem and the 17 percent who did not respond or answered no opinion and added them to create the 61 percent number. Truly misrepresenting the facts. Industry lobbyists continue to profess that up to 80 percent of the people are getting discounts. According to a survey done by the Michigan Department of Insurance, while companies do offer discounts, overall, fewer than half and as few as 5 percent (depending on the company) get the maximum discount. This coupled with rate increases of up to 74 percent still yields an increase in premiums. Consumers are not realizing rate decreases.
Rep. Dave Woodward, from D-Royal Oak, told the investigative team, “Their argument is that almost 80% of MI drivers are getting a discount. So they’re shifting all this discount money onto 20% of the population? Now what I think they have effectively done, they’ve raised the base rate across the board and so everyone’s been seeing their rates go up. I mean, no one thinks they’re saving money and the insurance companies want to think that they’re doing consumers a favor by doing this and no one believes them and no one believes them because it doesn’t make sense.”
During a National Association of Insurance Commissioners ( NAIC ) meeting, Birney Birnbaum, (Center for Economic Justice) and Robert Hunter, (Center for Justice and Democracy) reported on the inaccuracies of the credit reporting agencies, and the difference of available information between agencies. Discrepancies near 30 percent had been found and reported. Difficulty in correcting erred credit reports. Errors finding their way back to corrected reports making them incorrect again. Lack of information regarding what information is used by the Insurance Industry. The moving target of credit, as it can and often does change from day to day.
The credit reporting agencies responded poorly. They admit some minor consistency problems may exist, and they are working to create a friendlier and more efficient environment for consumer problems. They have even designed a program which they will sell to consumers to help fix their credit reports. Life must be good when a business can generate errors which are adverse to the consumer, and instead of fixing the errors, they will sell the consumer a program to assist in fixing the errors created by the credit agency.
The Insurance Industry in their defense likes to introduce studies showing a â€Ŕcorrelationâ€Ŕ between credit scoring and the likelihood of filing a claim, (remember, correlation shows a potential relationship, not cause, control and effect). The first studies triumphed were from Virginia and Arizona. Regulators from both states commented on how the industry made significant overstatements as to the nature and conclusions of the studies. Another study favored by the industry was conducted by the University of Texas (UT). This study was to be a true independent and multi-variate study. The UT does many studies for business, and they are normally done to prove the outcome desired by business. Mr. Birnbaum reviewed the study after its release only to report that it was not a true multi-variate study and the methodology for the study had been previously rejected as â€Ŕ counterproductive and misleadingâ€Â. Besides Mr. Birnbaum’s findings, it appears that the insurance companies were allowed to choose the customer information used in the study. The UT gave the broad parameters, but the companies had the freedom to choose which consumer files they would exclude, or include. These types of irresponsible behaviors lend more credence to the belief that credit scoring is strictly for the detriment of the consumer and benefits the greed of the company.
What the Insurance Industry will not publicize is how it held the NAIC hostage in 1995-1996. The NAIC was formulating their white paper on credit scoring and working towards a position along with policy for regulating the use of credit in personal lines insurance. The report was critical of the use of credit and suggested that the use be restricted. The study also showed a need for a true independent study on the use of credit scoring. The industry not pleased with the initial report withheld the Financial Database Filing Fees ( then 40 percent of NAIC revenue ) until the NAIC changed it’s position and rewrote their paper more in tune with industry demands. This action furthers the belief that money and power corrupt, and absolute power corrupts absolutely. No concern for the impact to consumers. No true independent study by the NAIC.
Tillinghast-Towers Perrin, a large actuarial firm was an advocate for the use of credit scoring. However, in an article released July 26, 2003, Tillinghast now seems to be advocating a return to the old tried and true way of underwriting and determining risk. In a study conducted by Tillinghast it was shown that standard underwriting practices yielded almost identical results as the credit scoring models. Additionally, with legislators restricting or banning the use of credit around the country, the costs associated with maintaining two or more separate systems would be expensive. Tillinghast suggest that companies would be better off if they returned to standard underwriting, and then refined those processes through better data mining of their own databases.
In late 2001 or early 2002 the Maryland Department of Insurance conducted a study of credit scores and zip codes. Credit scores in predominately white zip codes were significantly higher than those in predominately minority zip codes. These findings contribute to the belief that credit scoring may be used to create a disparate impact upon minorities. Through credit scores, insurance companies can determine race and economic composure for neighborhoods, zip codes and even blocks of an area. Companies armed with this weapon can again return to the deplorable practice of redlining, only this time through supposedly legal and approved methods. Minority areas in the past highlighted with red markers to designate high crime, poor, inner city and no-write zones, will now be marked by credit scores. Credit scoring will allow for either the complete rejection, or such high rates, that companies will effectively write themselves out of the â€Ŕless than desirable areas.†The economic gap and the reduced access to affordable insurance in minority and economically depressed areas will continue to grow.
Credit scoring is discriminatory. Proof of how and why it works cannot be shown. The practice preys upon those who can least afford to pay the higher rates. This is a system by which the insurance company can declare â€ŔGUILTY UNTIL PROVEN INNOCENT,†something our forefathers could not endorse. The system of rating risk through credit is a system, by design, which can be used to determine what customers have enough money to pay claims themselves instead of using their insurance. Those who have the least of means who must purchase insurance to protect themselves in case of loss are penalized. The ability to obtain affordable insurance in the preferred markets is rapidly being taken from the poor and minorities.
Florida insurance industry report and claims of great savings for consumers is total hogwash. The article alludes to studies and such in many states which just is not true. In order to believe industry reps, no matter who they are, someone must ask the right questions about producing their proof. The industry continually evades producing anything in its entirety that would substantiate their absurd claim that every Florida consumer gets a discount. The truth is that in order to make these credit scores work, insurance companies raise the base rate first, then “allow a discount percentage” based on a score (crystal ball prediction) provided by a third party vendor program. In short, insurance companies want to be paid NOW for claims that may happen in the future. Credit scoring truly discriminates against anyone that has had a cash flow problem that effected credit. There are reports out there that claim 67% of americans have had a credit problem one time or another in their lifetime. Lower income consumers, consumers who pay cash and those that have no credit history, and single parents are all discriminated against just because they make less money and are suseptible to credit problems. This does not mean they are bad drivers or that they WILL make a future claim. Simply, credit scoring is discrimination or red lining which is illegal.
It’s not always true what you get on credit reports. I have a credit card co. that wrote down on my credit instead of PAID IN FULL it says WRITE OFF. Do you know why? Because I wanted to pay in full and give up that credit card and they gave me a figure of $390.00 off the entire bill. ( on a $2,946.00 ) There were no late payments ever or extra fees(my credit limit was $5,000.00 and never used it)
I think a credit score does not always tell the truth.
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The Truth about Credit Scoring
Credit scoring is a deceptive, inaccurate tool used by the Insurance Industry to manipulate several systems. These systems include, but are not limited to, redlining or exclusion of certain classes of consumers from products and services either through complete denial or through discriminatory product pricing; rate manipulation by means of adjusting internal, non regulated, underwriting tiers; and through questionable proprietary secrecy which usurps the consumer’s ability to know or become aware of how they are scored and the accuracy of these scores.
Whom do they prey upon most often?
* Minorities who live in areas designated as low income, high crime, inner city, and poverty prone.
* Poorly educated who do not know how to protect themselves and feel forced to accept the abuse.
* The poor, the ones can least afford to pay higher rates are being driven into the substandard market.
* The Elderly, who have no debt are now penalized for retiring debt free
* Families with large medical debt
* Single mothers
These groups share commonalities. As individuals, they do not have the means by which to defend themselves from this predatory practice. The Insurance Industry knows this and exploits this knowledge to maintain the separation of classes. By continuing the separation, those on the bottom are forced to pay more and subsidize those at the top. Consumers who have no history of claims are forced to pay higher rates simply because they do not possess wealth.
With credit scoring insurance companies can now increase premiums arbitrarily by manipulating the underwriting scoring and tiering. Underwriting, which is not regulated, creates a gray area. By changing the underwriting requirements, consumers can have their rates increased or their policies rejected. This allows the companies to act without regard to regulatory compliance. No oversight, no rate filing with the Rating Commission, simply change the tiering cutoffs and take a rate increase. Additionally, when companies have been asked to show why rates and tiering changes have been made, how they are designed and adjusted, they have refused. They claim their formulas as trade secrets and proprietary intellectual property. When evidence has been presented, which brings to light the discriminatory aspects and the potential illegal act of redlining, companies again refuse to show the methodology claiming the law and regulation allow them to discriminate.
Insurance in this state is compulsary for auto, and required by lending institutions on home mortgages. The legislators and regulators for this state have put all citizens at risk. By allowing the secret models and unregulated changes in underwriting, insurance companies can effectively add a hidden tax and surcharges to every policy issued. Unfair hidden taxation, no representation, stealing from the poor, and failure by the legislative/regulatory bodies to protect the people. History is repeating itself. Over 200 years ago the Revolutionary War was fought to free this country from similar oppressive activities. Over 100 years ago the Civil War was fought to unite the country and help free people from slavery. The insurance companies, with aid from Regulators, are sending us back, again making it legal to own people and hold them hostage. To drive a car it must be insured. To have a mortgage on a home it must be insured. The laws and rules are in place to protect the citizens of this state and the institutions who lend people the money needed to purchase homes. Now these same people are told not only must they be insured, but at whatever price the insurance company demands. Even though the pricing may be excessively high and discriminatory. Those who are less fortunate, minorities and those who have had major upheaval in their lives shall now fall prey to the new â€ŔRobber Barons,†the insurance companies.
The Insurance Industry is guilty of blurring the truth, twisting the facts, and occasionally, outright lying. An investigative report by Channel 7 News from Detroit, Michigan, (http://www.detnow.com/investigations/0310301701.html) revealed some interesting information. The insurance industry was telling lawmakers that 61 percent of the people polled had no problem with the use of credit in rating insurance. Actually, what the industry did, was to take the 44 percent who had no problem and the 17 percent who did not respond or answered no opinion and added them to create the 61 percent number. Truly misrepresenting the facts. Industry lobbyists continue to profess that up to 80 percent of the people are getting discounts. According to a survey done by the Michigan Department of Insurance, while companies do offer discounts, overall, fewer than half and as few as 5 percent (depending on the company) get the maximum discount. This coupled with rate increases of up to 74 percent still yields an increase in premiums. Consumers are not realizing rate decreases.
Rep. Dave Woodward, from D-Royal Oak, told the investigative team, “Their argument is that almost 80% of MI drivers are getting a discount. So they’re shifting all this discount money onto 20% of the population? Now what I think they have effectively done, they’ve raised the base rate across the board and so everyone’s been seeing their rates go up. I mean, no one thinks they’re saving money and the insurance companies want to think that they’re doing consumers a favor by doing this and no one believes them and no one believes them because it doesn’t make sense.”
During a National Association of Insurance Commissioners ( NAIC ) meeting, Birney Birnbaum, (Center for Economic Justice) and Robert Hunter, (Center for Justice and Democracy) reported on the inaccuracies of the credit reporting agencies, and the difference of available information between agencies. Discrepancies near 30 percent had been found and reported. Difficulty in correcting erred credit reports. Errors finding their way back to corrected reports making them incorrect again. Lack of information regarding what information is used by the Insurance Industry. The moving target of credit, as it can and often does change from day to day.
The credit reporting agencies responded poorly. They admit some minor consistency problems may exist, and they are working to create a friendlier and more efficient environment for consumer problems. They have even designed a program which they will sell to consumers to help fix their credit reports. Life must be good when a business can generate errors which are adverse to the consumer, and instead of fixing the errors, they will sell the consumer a program to assist in fixing the errors created by the credit agency.
The Insurance Industry in their defense likes to introduce studies showing a â€Ŕcorrelationâ€Ŕ between credit scoring and the likelihood of filing a claim, (remember, correlation shows a potential relationship, not cause, control and effect). The first studies triumphed were from Virginia and Arizona. Regulators from both states commented on how the industry made significant overstatements as to the nature and conclusions of the studies. Another study favored by the industry was conducted by the University of Texas (UT). This study was to be a true independent and multi-variate study. The UT does many studies for business, and they are normally done to prove the outcome desired by business. Mr. Birnbaum reviewed the study after its release only to report that it was not a true multi-variate study and the methodology for the study had been previously rejected as â€Ŕ counterproductive and misleadingâ€Â. Besides Mr. Birnbaum’s findings, it appears that the insurance companies were allowed to choose the customer information used in the study. The UT gave the broad parameters, but the companies had the freedom to choose which consumer files they would exclude, or include. These types of irresponsible behaviors lend more credence to the belief that credit scoring is strictly for the detriment of the consumer and benefits the greed of the company.
What the Insurance Industry will not publicize is how it held the NAIC hostage in 1995-1996. The NAIC was formulating their white paper on credit scoring and working towards a position along with policy for regulating the use of credit in personal lines insurance. The report was critical of the use of credit and suggested that the use be restricted. The study also showed a need for a true independent study on the use of credit scoring. The industry not pleased with the initial report withheld the Financial Database Filing Fees ( then 40 percent of NAIC revenue ) until the NAIC changed it’s position and rewrote their paper more in tune with industry demands. This action furthers the belief that money and power corrupt, and absolute power corrupts absolutely. No concern for the impact to consumers. No true independent study by the NAIC.
Tillinghast-Towers Perrin, a large actuarial firm was an advocate for the use of credit scoring. However, in an article released July 26, 2003, Tillinghast now seems to be advocating a return to the old tried and true way of underwriting and determining risk. In a study conducted by Tillinghast it was shown that standard underwriting practices yielded almost identical results as the credit scoring models. Additionally, with legislators restricting or banning the use of credit around the country, the costs associated with maintaining two or more separate systems would be expensive. Tillinghast suggest that companies would be better off if they returned to standard underwriting, and then refined those processes through better data mining of their own databases.
In late 2001 or early 2002 the Maryland Department of Insurance conducted a study of credit scores and zip codes. Credit scores in predominately white zip codes were significantly higher than those in predominately minority zip codes. These findings contribute to the belief that credit scoring may be used to create a disparate impact upon minorities. Through credit scores, insurance companies can determine race and economic composure for neighborhoods, zip codes and even blocks of an area. Companies armed with this weapon can again return to the deplorable practice of redlining, only this time through supposedly legal and approved methods. Minority areas in the past highlighted with red markers to designate high crime, poor, inner city and no-write zones, will now be marked by credit scores. Credit scoring will allow for either the complete rejection, or such high rates, that companies will effectively write themselves out of the â€Ŕless than desirable areas.†The economic gap and the reduced access to affordable insurance in minority and economically depressed areas will continue to grow.
Credit scoring is discriminatory. Proof of how and why it works cannot be shown. The practice preys upon those who can least afford to pay the higher rates. This is a system by which the insurance company can declare â€ŔGUILTY UNTIL PROVEN INNOCENT,†something our forefathers could not endorse. The system of rating risk through credit is a system, by design, which can be used to determine what customers have enough money to pay claims themselves instead of using their insurance. Those who have the least of means who must purchase insurance to protect themselves in case of loss are penalized. The ability to obtain affordable insurance in the preferred markets is rapidly being taken from the poor and minorities.
Florida insurance industry report and claims of great savings for consumers is total hogwash. The article alludes to studies and such in many states which just is not true. In order to believe industry reps, no matter who they are, someone must ask the right questions about producing their proof. The industry continually evades producing anything in its entirety that would substantiate their absurd claim that every Florida consumer gets a discount. The truth is that in order to make these credit scores work, insurance companies raise the base rate first, then “allow a discount percentage” based on a score (crystal ball prediction) provided by a third party vendor program. In short, insurance companies want to be paid NOW for claims that may happen in the future. Credit scoring truly discriminates against anyone that has had a cash flow problem that effected credit. There are reports out there that claim 67% of americans have had a credit problem one time or another in their lifetime. Lower income consumers, consumers who pay cash and those that have no credit history, and single parents are all discriminated against just because they make less money and are suseptible to credit problems. This does not mean they are bad drivers or that they WILL make a future claim. Simply, credit scoring is discrimination or red lining which is illegal.
It’s not always true what you get on credit reports. I have a credit card co. that wrote down on my credit instead of PAID IN FULL it says WRITE OFF. Do you know why? Because I wanted to pay in full and give up that credit card and they gave me a figure of $390.00 off the entire bill. ( on a $2,946.00 ) There were no late payments ever or extra fees(my credit limit was $5,000.00 and never used it)
I think a credit score does not always tell the truth.