Wow…you have to realize that an \”insurance score\” is comprised from risk. The two main risk variables in the auto insurance industry is your driving risk and like most insurance products, your financial risk. Credit score indicates your ability to pay your premiums in a timely and consistant manner. Believe it or not, it cost the insurer a ton of money to cancel, reinstate, or try to collect from tardy insureds. True, credit score may not predict your risk as a driver, but it does predict your risk as a customer.
Ok. You helped me to understand SOME of your veiwpoint regarding having to pay overhead, MVRs and CLUEs for those that end up cancelling and those costs do add up quite a bit. But carriers pass those costs onto the independent agents too, so are they really out the money for the MVR\’s and CLue\’s for those drivers? I think not. If I am missing something please enlighten me.
The overhead for the carriers\’ employees -there you have a point. I don\’t know what you mean by transaction expenses and costs for setting up pay plans. When dealing with the lower income/low credit non-standard clientele, it has been my experience that many do not have checking accounts so they cannot choose a monthly EFT pay plan and must go on direct bill, which most of the companies charge a fee for that called an \”installment fee\” which gets tacked onto each premium bill. Again, isn\’t this one of the costs you cited which are passed on?
The \”financially responsible\” people are those who are fortunate to have not had anything bad happen to them such as job loss, divorce, corporate downsizing/job elimination, illness or disability. But one\’s good fortune can turn on a dime and it doesn\’t take long for one\’s credit to go to the cellar afterward. credit rating reflects on one\’s ability to pay their bills. There is a difference between being unable to pay the bills and being unwilling to. Is it right to sock it to someone with a clean driving record whom, through no fault of their own, finds themselves jobless in their middle-aged years (when obtaining another good job is nearly impossible due to age discrimination)in order to \”reward\” the more fortunate who have the means to pay their bills perfectly on time (thus being able to have good credit)? Is it fair for a poor divorcee to pay a crippling amount (which they cannot afford for very long) because the divorce ruined his or her credit?
Again, I must emphasize that one\’s income DOES play a major factor because the less income you have, the less ability you have to withstand an unforeseen emergency or a sharp increase in prices for your basic needs such as the drastic utility rate hike (like when National Fuel & Gas raised their rates by 41% in Sept 2005 here in northwstern PA, pricing out 68% of the Erie area residents).
Now, when you make say, only $14,000/yr or less, over %45 of your income goes to pay for shelter, a winter heating utility such as natural gas being raised in price by 41% is enough to put you beyond the economic pale. So now you are forced to choose whether you pay your rent and your electric and gas so you can cook, bathe and keep warm or paying your auto insurance premiums on time. Guess which one will win out. When there\’s a sharp rise in prices for the things you need to live or are required by law to have so you can just barely function and your income does not enable you to afford it, your bills suffer – hence so does your credit.
When the poor, who are the majority of those affected adversely by the practice of credit scoring, are charged more for something they are required by law to have in order to get to and from their low paying jobs, it should be no surprise that they let their policies lapse and cancel for non-payment because they simply can\’t afford what they are being charged. This should be of great concern here because we do not want to see more (as opposed to less) uninsured drivers out there on the roads with us or with our insureds where they would be facing increase in risk exposure to accidents incolving more and more uninsured drivers.
I agree with you that those who live responsibly should not be made to subsidithose who are less responsible. But I am very concerned about the impact this will have as more and more of the non-standard drivers let their policies cancel – which drives up costs for carriers and results in lost income to agents (like me) when more and more policies cancel for non-payment due to unaffordability for the customers. What I am getting at is that the situation that is possibly being created here will result in more uninsured drivers.
I had a 24 yr old w/ a DUI from a year ago come in for a quote since she recently got her license reinstated and will be buying a car. Her quote comes out about only half as much as another customer of mine who is the exact same age, with a spotless driving record but who is very low income and hence has poor credit. When you don\’t have enough money to be able to pay your bills and meet your basic needs, which is the definition of being poor and low-income in the first place, of course your credit will be poor. So basically, those who have fallen on hard times and who are poor are paying more than they can afford for something required, while a previously convicted DUI who has a middle class income and/or family support gets a \”free lunch\”.
I understand what you are saying about poor people having more difficulty paying their premiums and keping their coverage from lapsing or cancelling. But those carriers who go through independent agents simply back-charge the agents the commissions on these lapsed/cancelled policies so how much are they really out? Furthermore, if the poor were not being charged 40%-50% more than their middle-class counterparts with the good credit – hence charged far more than what they can afford, maybe they wouldn\’t be going without coverage and letting their policies lapse due to inability to afford it.
Now people are creatures of habit. So I am a bit skeptical on this credit scoring business because someone who has exhibited a record of careless driving habits is alot more likely to cause a loss and when they do, they have as much of a chance of causing a loss to an affluent \”claims conscious\” person as they do to a poor person who would have to be compensated by filing claims. So given all that, wouldn\’t it be more prudent and cost-effective for the carriers if they just assessed those who are the catalyst, the cause of the losses (hence the causes of claims) in the first place – irregardless of whether or not their FICO score is above 700? Has there been any unbiased comparrison studies to show that this credit scoring is really saving carriers more money than assessments based on driving habits/history?
Just because a person has bad credit does not mean that they are poor. A credit score is an indicator of managing debt and financial responsibility, not how much money you make. A low income person has to manage their debts just as a high income person does and live at an approriate means that they can afford.
The insurers get hit when a re-instatement, cancellation, etc. is imposed. True they get back the commissions, but if you think that is thier main expense than you are grossly mistaken. Expenses can include, but are not limited to pay plan set-ups, MVR, CLUE reports, credit checks, overhead expenses for employees and processes, and transaction expeses associated with issuance.
Now think about this – if we didn\’t use credit scoring, the people that are more financially responsible (regardless of income) will end up subsitizing the people who are not in order for insurers to write at a profitable level and be able to cover the associated financial costs. Credit more accurately predicts a customers total risk, if we didn\’t use it than the people who are more financially reponsible would have to pay higher premiums and the people who are not (higher risk to the insurer) would receive lower premiums.
Is it fair for people who are more financially responsible to pay for people who are not?
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Wow…you have to realize that an \”insurance score\” is comprised from risk. The two main risk variables in the auto insurance industry is your driving risk and like most insurance products, your financial risk. Credit score indicates your ability to pay your premiums in a timely and consistant manner. Believe it or not, it cost the insurer a ton of money to cancel, reinstate, or try to collect from tardy insureds. True, credit score may not predict your risk as a driver, but it does predict your risk as a customer.
Ok. You helped me to understand SOME of your veiwpoint regarding having to pay overhead, MVRs and CLUEs for those that end up cancelling and those costs do add up quite a bit. But carriers pass those costs onto the independent agents too, so are they really out the money for the MVR\’s and CLue\’s for those drivers? I think not. If I am missing something please enlighten me.
The overhead for the carriers\’ employees -there you have a point. I don\’t know what you mean by transaction expenses and costs for setting up pay plans. When dealing with the lower income/low credit non-standard clientele, it has been my experience that many do not have checking accounts so they cannot choose a monthly EFT pay plan and must go on direct bill, which most of the companies charge a fee for that called an \”installment fee\” which gets tacked onto each premium bill. Again, isn\’t this one of the costs you cited which are passed on?
The \”financially responsible\” people are those who are fortunate to have not had anything bad happen to them such as job loss, divorce, corporate downsizing/job elimination, illness or disability. But one\’s good fortune can turn on a dime and it doesn\’t take long for one\’s credit to go to the cellar afterward. credit rating reflects on one\’s ability to pay their bills. There is a difference between being unable to pay the bills and being unwilling to. Is it right to sock it to someone with a clean driving record whom, through no fault of their own, finds themselves jobless in their middle-aged years (when obtaining another good job is nearly impossible due to age discrimination)in order to \”reward\” the more fortunate who have the means to pay their bills perfectly on time (thus being able to have good credit)? Is it fair for a poor divorcee to pay a crippling amount (which they cannot afford for very long) because the divorce ruined his or her credit?
Again, I must emphasize that one\’s income DOES play a major factor because the less income you have, the less ability you have to withstand an unforeseen emergency or a sharp increase in prices for your basic needs such as the drastic utility rate hike (like when National Fuel & Gas raised their rates by 41% in Sept 2005 here in northwstern PA, pricing out 68% of the Erie area residents).
Now, when you make say, only $14,000/yr or less, over %45 of your income goes to pay for shelter, a winter heating utility such as natural gas being raised in price by 41% is enough to put you beyond the economic pale. So now you are forced to choose whether you pay your rent and your electric and gas so you can cook, bathe and keep warm or paying your auto insurance premiums on time. Guess which one will win out. When there\’s a sharp rise in prices for the things you need to live or are required by law to have so you can just barely function and your income does not enable you to afford it, your bills suffer – hence so does your credit.
When the poor, who are the majority of those affected adversely by the practice of credit scoring, are charged more for something they are required by law to have in order to get to and from their low paying jobs, it should be no surprise that they let their policies lapse and cancel for non-payment because they simply can\’t afford what they are being charged. This should be of great concern here because we do not want to see more (as opposed to less) uninsured drivers out there on the roads with us or with our insureds where they would be facing increase in risk exposure to accidents incolving more and more uninsured drivers.
I agree with you that those who live responsibly should not be made to subsidithose who are less responsible. But I am very concerned about the impact this will have as more and more of the non-standard drivers let their policies cancel – which drives up costs for carriers and results in lost income to agents (like me) when more and more policies cancel for non-payment due to unaffordability for the customers. What I am getting at is that the situation that is possibly being created here will result in more uninsured drivers.
I had a 24 yr old w/ a DUI from a year ago come in for a quote since she recently got her license reinstated and will be buying a car. Her quote comes out about only half as much as another customer of mine who is the exact same age, with a spotless driving record but who is very low income and hence has poor credit. When you don\’t have enough money to be able to pay your bills and meet your basic needs, which is the definition of being poor and low-income in the first place, of course your credit will be poor. So basically, those who have fallen on hard times and who are poor are paying more than they can afford for something required, while a previously convicted DUI who has a middle class income and/or family support gets a \”free lunch\”.
I understand what you are saying about poor people having more difficulty paying their premiums and keping their coverage from lapsing or cancelling. But those carriers who go through independent agents simply back-charge the agents the commissions on these lapsed/cancelled policies so how much are they really out? Furthermore, if the poor were not being charged 40%-50% more than their middle-class counterparts with the good credit – hence charged far more than what they can afford, maybe they wouldn\’t be going without coverage and letting their policies lapse due to inability to afford it.
Now people are creatures of habit. So I am a bit skeptical on this credit scoring business because someone who has exhibited a record of careless driving habits is alot more likely to cause a loss and when they do, they have as much of a chance of causing a loss to an affluent \”claims conscious\” person as they do to a poor person who would have to be compensated by filing claims. So given all that, wouldn\’t it be more prudent and cost-effective for the carriers if they just assessed those who are the catalyst, the cause of the losses (hence the causes of claims) in the first place – irregardless of whether or not their FICO score is above 700? Has there been any unbiased comparrison studies to show that this credit scoring is really saving carriers more money than assessments based on driving habits/history?
Just because a person has bad credit does not mean that they are poor. A credit score is an indicator of managing debt and financial responsibility, not how much money you make. A low income person has to manage their debts just as a high income person does and live at an approriate means that they can afford.
The insurers get hit when a re-instatement, cancellation, etc. is imposed. True they get back the commissions, but if you think that is thier main expense than you are grossly mistaken. Expenses can include, but are not limited to pay plan set-ups, MVR, CLUE reports, credit checks, overhead expenses for employees and processes, and transaction expeses associated with issuance.
Now think about this – if we didn\’t use credit scoring, the people that are more financially responsible (regardless of income) will end up subsitizing the people who are not in order for insurers to write at a profitable level and be able to cover the associated financial costs. Credit more accurately predicts a customers total risk, if we didn\’t use it than the people who are more financially reponsible would have to pay higher premiums and the people who are not (higher risk to the insurer) would receive lower premiums.
Is it fair for people who are more financially responsible to pay for people who are not?