Auto Premium Rating Error Cost U.S. Auto Insurers More Than $16 Billion

October 3, 2006

  • October 3, 2006 at 10:26 am
    Yodar says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    You hit the nail on the head Jacqueline. The \”junk science\” of credit scoring is a windfall for carriers. What\’s next? The color of the car? Your \”garaging location\” or driveway is too close to an intersection or a mall or a bar? DMV records and CLUE are based on facts and have been excellent risk indicators for many years. Have the \”experts\” who tout credit scoring ever filed an insurance claim with even a remote opportunity of profit? The average person filing a claim is fortunate enough to be indemnified much less receive anything remotely resembling a \”profit\”. I have been selling personal auto for 35 years and I am ashamed that the industry has kowtowed to the \”junk science\” of credit scoring.

  • October 3, 2006 at 10:31 am
    Yodar says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    16 Billion? So how many auto carriers went belly-up due to this horrible loss? Somebody please name one? Hello? Any experts available to answer this? Is the list too long to print? (Isn\’t sarcasm great?) 16 Billion! Oh my! All those poor companies down the tubes. Hand me a tissue please. Thank you.

  • October 3, 2006 at 2:59 am
    Joe Agent says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    With so much other information readily available and accurate, why do companies feel the need to chase commuter mileage? I wish to see this one go away.

  • October 3, 2006 at 4:20 am
    sam says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    Spoken like a true agent. never heard of rate for exposure I guess.

  • October 3, 2006 at 4:51 am
    Leakage? says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    And once the rating factors are corrected or refined, the \”leakage\” premium that is built in will go away, right?

  • October 3, 2006 at 5:17 am
    Joe Agent says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    So tell the agent, get all neccessary information for underwriting, then use only half the info you ask for? Come on Sam, I wasn\’t being argumentative, but if you insist. Because commuter miles are so maleable, I just think it is too easily manipulated to work correctly anymore. By the way, besides checking all the information that the agent has input through credit, mvr, clue etc. WTF does a personal lines underwriter do anymore?

  • October 3, 2006 at 6:11 am
    Jacqueline says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    What about carriers rating people adversely because their poor credit weighs more than their excellent claims record? This practice is based on the assumption that the poor are desperate to get money, so they see insurance as a safety net as they are (supposedly) more prone to file a claim to seek compensation for a loss than the middle-class to upper class higher-income earners.

    Carriers tend to cut the well-off alot of slack because they think they have a \”high lifetime value\” as potential customers for buying annuities and insuring luxuries such as motor homes and boats so the guy with a DUI or two and maybe a few minor accidents will get cut a break. Also the higher income people with the perfect credit (aka \”the 700 Club – FICO scores above 700) are deemed by caompanies to be less prone to filing a claim on which to be compensated because they can afford to absorb the loss themselves, and thus can afford to be more claims conscious than the poor who have no money or safety net.

    What this means is that a working poor middle-aged driver w/ an excellent driving record pays more than the affluent driver with tickets, accidents and a DUI or two. With over 28% of the population living paycheck to paycheck, how much effect do you think this has on families – on entire communities? 37 million Americans live at or below poverty. Being able to afford a car is the link between being able to get to where the jobs are versus not being able to get and keep a job. And a major part of being able to afford a car is being able to afford the auto insurance required. What do you think about that?

  • October 4, 2006 at 1:04 am
    Jacqueline says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    I have only been doing personal auto and home for a little less than 2 years, but I\’m a quick study. The thing that bugged me was that I have several loyal customers who have kept their policies in force without interruption and who have had no incidents, yet their rates went up. Trying to be a good agent, I faxed written requests to the policy upload research departments of the carriers I am appointed with to find out why these customers rates had gone up when the rates had not gone up overall as a general rate increase, citing the customers\’ good driving records and renewals and continuous coverage. I never got ANY response at all, did not know what to say to these customers when they got angry and wanted to know why their rates went up. They just wanted an answer but I didn\’t know what to tell them because the companies wouldn\’t tell me anything so I was left on my own with no clue trying to deal with angry customers. Then last week when my own policy came up for renewal, I got an email alert from Citibank Credit Monitoring Services notifying me that an inquiry was made on my credit report.

    Following the links, I was able to acertain that the carrier had checked my credit right before renewal! I called the carrier to ask why they pulled my credit report. I was told, \”That\’s part of the review of the insurance credit scoring process the company does to determine what rating teir I belong in.\”

    I did some additional digging and looked this up on the Internet. I found out that countless people have been adversely affected by this. I also found the most pathetic, laughable \”case study\” done by EPIC that claimed the low income (seniors, the disabled, women, etc) were not adversely affected in general as a group. (What a crock!)

    Now, if you are low income or are struggling to live paycheck to paycheck, and just one thing goes wrong in your life – a sick child or spouse, a lay-off, a disability, a major appliance repair, etc – obviously your credit is NOT going to be good because you don\’t have enough income to have any safety net to cover all your bills – hence, your credit is adversely impacted. But as volitile and fragile as so many Americans are financially, behaviors are NOT as volitile and are indeed quite predictable. Someone with a long standing record of safety consciousness behind the wheel on the road is not going to drastically change their driving habits because of their credit going to the basement.

    But the spokesman championing this \”study\”, which Yodar has rightly called junk science, was quoted as to having said, \”The lower income population files more \”small\” claims and with higher frequency since they do not have the resources to be able to afford to absorb a loss without needing compensation from the insurance company whereas the higher income people are more claims conscious.\”

    Since insurance IS a for-profit business, I understand that insurance companies are seeking better ways to minimize claims. But what causes claims? Losses occurring! If there isn\’t a loss in the first place, there isn\’t a claim! So who is more prone to causing a loss? The guy with 2 DUI\’s within the last 5 years who just happens to have a good job enabling him to maintain a FICO score above 700 or the working-poor woman who never had a ticket – never mind an at-fault accident? This certainly seems like a no-brainer to me

    In my humble opinion, instead of hurting those who can least afford it who must have auto insurance to be able to drive in order to be able to get and keep jobs is NOT as effective a tool in minimizing/discouraging claims as financial incentives of penalizing the bad drivers and keeping more of the bad actors off the roads in the first place. There are less losses overall and therefore less need for filing a claim if the cause of the problem is brought to heel.

    The cause of the problem are unsafe or negligent drivers who cause accidents – regardless of their income and credit rating. I would rather be driving with more good drivers on the road who may have poor credit than with the bad drivers who are affluent and have great credit because their \”700 Club\” FICO score is NOT going to make them less prone to causing a loss – thus necessitating a potential claim – in the first place. What are these \”experts\” in the industry thinking?

  • October 4, 2006 at 1:21 am
    Mark says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    People are interchanging poor and low credit score. They are not necessarily the same thing. Neither is rich and good credit socre. Also, if you believe the industry has this all wrong, then you should be able to start a company and use the criteria that you believe is correct. I think you will find that the company using credit will be eating your lunch.

  • October 6, 2006 at 1:34 am
    Mr Clean says:
    Like or Dislike:
    Thumb up 0
    Thumb down 0

    Experience tells us that the basic principle of insurance is pooling, and defining it. Experience also tells us that if you put too much chlorine into it goes from clean to deadly, not very clean. You can get away with overcleaning for a while, but eventually no one can live in that pool, so they start another pool. You see eventually all you have left is, middle-aged, no accidents, no cites, perfect credit, low mileage, garaged vehicles, and we know eventually everyone will get old,get a ticket etc. Too many educated people are trying to squeeze profits rather than writing more insurance by providing service and paying there claims. Where have all the REAL insurance gone?



Add a Comment

Your email address will not be published. Required fields are marked *

*