tcope said:barefool said:I would like to see your data on accidents versus claims filed. Insurance companies obviously don't have the data, since they don't know about accidents that don't result in claims. If insurance companies aren't compiling this data, who is? I think you're just making things up.I can't prove something that does not exist.That's my point. You can't prove it, yet you continue to assert it.But that's not the point, only a reasonable assumtion to the fact that there is no correlation between someone's ability to pay bills on time and how they drive or the likelihood that a storm is going to hit their house. If you'd seriously like to say that there is, then I'm guessing you stand alone in that line.I'm not alone. I have insurance companies, actuaries, statisticians, and people exhibiting common sense over here with me.It's not irrelevant... and several states have already come to this conclusion by making it illegal.That is a logical fallacy called Appeal to Authority. Arguing that, just because some legislators in Hawaii believe that credit scoring is a bad idea means that we should all adopt their belief is fallacious.I've never said that people with poor credit histories don't cost insurance companies more money.So you concede the main point.What I _have_ said is that it's unfair (illegal in several states) to charge someone a higher rate because they are more likely to take someone up on their promise to pay.And I have said that you don't understand insurance. If we were talking about a bank and two people put money in a savings account, but the bank pays the person with good credit a higher rate than the person with poor credit, or the bank refused to allow the person with poor credit to withdraw his money, then you would have a valid point. But insurance is about transfer of risk. An insurance company assumes risk for each driver. It only stands to reason that the higher the risk, the higher the premium.Charge an insured more because they are a higher _risk_... not because they are more likely to file a claim and use _relevant_ data to make this determination.You're making a distinction without a difference. To an insurance company risk=claims.I have not seen that this use is increasing. I have seen more and more states making it illegal. Insurance companies pay a lot of money to have laws go their way. Those states went against this and made the law anyway.You haven't been paying attention. Credit scoring is more common today than ever before.I never said probability of a claim should not be considered.Again, you're conceding the point you're arguing against.Filing a claim and incurring a loss can be two different things.Not to an insurance company.Rates can be based on risk and exposure and rates can be based on the probability that once a loss is sustained the the insured will or won't file a claim.Wrong. Rates are based on profitability to an insurance company, which is based on claims. That's only common sense. How many people call their insurance to inform them that they've had an accident, but won't be filing a claim? The answer is zero. Even if someone did call, the insurer wouldn't even record the information. They only care about claims.But the bottom line is that credit histories are not a valid assessment of risk/exposure and as so, they should not be used.Of course they are. Read the statistical studies that prove you wrong.I'm not sure how many times I can state in several posts that credit history (obviously) has no relationship to risk/exposure. I've explained why, given examples to support this, and asked for any proof that someone can produce showing otherwise.What you have done is a logical fallacy called Begging the Question. You essentially said, "Since credit scoring isn't correlated with risk, we can conclude that credit scoring isn't correlated with risk." You have given theory, fictitious anecdotes, and nonsensical double talk to try to support your position, but those of us on the other side of the argument have statistics and common sense to back us up.Gave you give me an example of how someone's inability to pay a bill on time would indicate that the person is more likely to suffer a covered loss?I already have. People with low credit scores tend to be irresponsible. They may not keep their cars adequately maintained. They may not follow the traffic laws as closely as more responsible people. Whatever the exact reasons are, we know that they are more likely to file claims with their insurers, which not even you deny.

tcope said:Here are some excerpts from that report (which was basically written by insurance companies and orginizations made up of insurance companies):This is a logical fallacy called ad hominem. You attack the report's authors in the hopes that it will distract from the report's content."Finding #1: Using multivariate analysis techniques to adjust the data for interrelationships between risk factors, insurance scores were found to be
correlated with the propensity for loss. This correlation is primarily due to a correlation between insurance scores and claim frequency, rather than a
correlation between insurance scores and average claim severities."

The part I highlighted is very important. They speak about comparing credit data and "risk"... but then state that they are comparing credit data and "claims frequency". This are two different things.No they're not. As I've already stated, to an insurance company, they only care about claims. That's how they measure risk, risk of dollars paid out in claims by the insurer. Claim averages can broken down two ways. Claim severity, or the average amount per claim, and Claim frequency, or the number of claims. If you multiply the average severity by the frequency, you get the total dollars of claims paid by the insurer.

What this report, and all reports that examine credit scoring in auto insurance, concluded is that drivers with low credit score don't file claims that cost more (severity) than drivers with high credit score, they file more claims (frequency). That's the long and short of it. Higher frequency means higher losses to the insurer, and therefore higher premiums are justified for the low credit score drivers.Is this person more likely to be in an accident because he does not have money... or because he's high and is driving down alleys to find hookers?Who cares? We know that he's more likely to file a claim, and that's all that matters.
I'll tell you what... when this person is in an accident and it's learned for a FACT why... THEN increase the person's rates. Let's deal with facts that we know are true (and since there is CLUE reporting, the next carrier can use this same accident information to increase this person's rates)That's setting the bar pretty high for insurers. How about this, let's force the insurers to use universally accepted actuarial and statistical methods to prove that one class of driver is more costly than another class, and let's let them charge that class of driver a premium that is commensurate with the risk they pose. Wait a minute, that's how they price policies right now!In that a credit score does not indicate WHY a person has bad credit, your _can't_ say that a lack of money to pay bills leads to poor driving. You simply do not know. THAT is _why_ I state credit histories should not be used..... THERE IS NO KNOWN RELATIONSHIP to risk.I don't have to know. I know that low credit score = high risk. That's all I have to prove. Trying to penetrate down to a reason for each particular individual is a pointless sociological exercise that isn't necessary.To me, as a claims adjuster, risk is the likelihood that someone is going to be involved in an accident.Wrong. You need to be concerned with the risk that an insured is going to file a claim. Look at deductibles. If an insurance company only writes auto policies with deductibles of $1,000 or higher, then it can disregard the risk of all accidents resulting in claims below $1,000 because it won't affect them. The company can concern itself with higher severity accidents for rate making purposes.But this is why I made it clear that there is a difference and I explained the difference... that is, rick that someone will be in an accident and risk that someone will file a claim. I've said that time and time again. So it should be clear that when I say "risk" I'm not speaking of the likelihood of filing a claim. You and nycll keep wanting to blur that line.The line that you're trying to paint is a very blurry one to begin with. First, I can accept that some accidents will not be filed with insurers. But you can't use that arguing because you don't know how many accidents aren't turned in. How could you? You never find out about them. You've simply assumed that there's some vast number of unreported claims and you've based your beliefs on credit scoring on that belief. You may as well argue that credit scoring is bad because Bigfoot said it is.

Second, as I've written many times, the question of how many claims don't get reported is moot anyway. That's because unreported claims cost insurance company absolutely no money at all. Insurance companies are interested in what rating elements correlate with claim costs. Credit score is undeniably predictive in determining claim costs to insurance companies.Trust me... 25 years working for P&C carriers with 20 years as an adjuster... I'm hoping I understand the concept of insurance.Apparently not. You sound like the people who believe that everyone is entitled to cost insurance companies as much in claims as they've paid in premiums. As I've said, it's not a savings account. It's a transfer of risk. But regardless of how long you've worked in the industry, you're provably ignorant on the subject of rate making.We are discussing what information an insurance company should be able to use to determine rates. I have no idea why you bring up how insurance works. My example was not one of a "claim", rather one of "premiums".Your example was a gym. Obviously buying a product or a service entitles you to use the product or service. That's not how insurance works. You're buying some protection against the possibility of having a loss, with the hope that you won't ever need to file a claim.What I've said time and time again is that insurance companies should use RELEVANT information to asses risk (possibility of being involved in a loss... accident in this case) to determine rates.Right. But then you do a song and dance about how probability of filing a claim isn't really the same as risk to an insurer (when in fact it is), and that rating elements that are statistically proven to be relevant to risk are in actuality, irrelevant. Just because you say so.

nycll said:"I'll tell you what... when this person is in an accident and it's learned for a FACT why... THEN increase the person's rates."

So why not apply the same reasoning to speeding tickets? Don't increase his rates because the poor guy got 5 speeding tickets. Wait till he gets in an accident.

I think you might have confused insurance business with the criminal justice system, you know, presumed innocent until proven guilty.Your statement certainly is on point and I could see this argument going either way. The difference is that speeding is reckless by nature (it's why it's illegal). Driving recklessly is a proven fact in leading to accidents (again, the reason why it's illegal). So their is a relationship between the things. Paying bills late is not related to being more reckless when you drive.

I'll give yet another example... I have friends who are declaring bankruptcy. They run a large cabinet making company. They are filing as several contractors went belly up and never paid them (we are talking close to $100,000 in all). This is going to kill their credit score. Are they driving any worse then they were before they filed? As mentioned in the AG quote provided, there is just no way to tell why someone's credit history is bad. This is why I say it should not be allowed to be used. I agree an insurance company should be allowed to hedge their bets all that they want... but it needs to be a level playing field for the insurance company and insured.

tcope said:nycll said:"I'll tell you what... when this person is in an accident and it's learned for a FACT why... THEN increase the person's rates."

So why not apply the same reasoning to speeding tickets? Don't increase his rates because the poor guy got 5 speeding tickets. Wait till he gets in an accident.

I think you might have confused insurance business with the criminal justice system, you know, presumed innocent until proven guilty.Your statement certainly is on point and I could see this argument going either way. The difference is that speeding is reckless by nature (it's why it's illegal). Driving recklessly is a proven fact in leading to accidents (again, the reason why it's illegal). So their is a relationship between the things. Paying bills late is not related to being more reckless when you drive.

I'll give yet another example... I have friends who are declaring bankruptcy. They run a large cabinet making company. They are filing as several contractors went belly up and never paid them (we are talking close to $100,000 in all). This is going to kill their credit score. Are they driving any worse then they were before they filed? As mentioned in the AG quote provided, there is just no way to tell why someone's credit history is bad. This is why I say it should not be allowed to be used. I agree an insurance company should be allowed to hedge their bets all that they want... but it needs to be a level playing field for the insurance company and insured.There are plenty people who has gotten speeding tickets without ever getting in an accident. Yours truly have gotten 3 speeding tickets in my life time and never ever involved in an accident (knock on wood).

So replace your bankruptcy friend with one of this people, and apply your logic, viola, you reach the conclusion that insurance companies shouldn't price the risk based on speeding tickets either.

That is like telling someone to prove that the sun is not made up of gum balls.

Oh that's too easy to do. Gum balls vaporize at a much much lower temperature than the surface of the sun. If you threw a handful of gum balls at the sun they wouldn't even make it to the corona before they were history.

WalStMonky said:That is like telling someone to prove that the sun is not made up of gum balls.

Oh that's too easy to do. Gum balls vaporize at a much much lower temperature than the surface of the sun. If you threw a handful of gum balls at the sun they wouldn't even make it to the corona before they were history.I think in the sun all molecules break apart into elements. But the moon is made of cheese.

The local paper (Florida) interviewed an insurance executive who stated that someone with bad credit was less likely to change their bald tires causing a higher chance of an accident in the rain. I took it to mean that bad credit people worry less about the details and fail to see the big picture. Although I wonder, I had some friends with good credit but bad brakes on their car but it didn't seem to phase them as long as it could stop in under 500 feet.

Since tcope puts increased emphasis on the opinions of politicians over hard data, I have combined the two. This link contains a study performed by the Texas Department of Insurance.

TX Insurance Commissioner said:Prior to the study, my initial suspicions were that while there may be a correlation to risk, credit scoring’s value in pricing and underwriting risk was superficial, supported by the strength of other risk variables. ... The study, however, did not support those initial suspicions.Other quotes from the actual study:By using credit score, insurers can better classify and rate risks based on differences in claim experience.

For personal auto liability, credit score varies in importance depending on the model the insurer is using, but was generally comparable in importance to territory and driving record for predicting claim experience. Only class (which reflects the age, gender and marital status of the driver combined with usage of the vehicle) was consistently a more important rating variable than credit score, driving record, or territory.

For both personal auto liability and homeowners, the difference in claims experience by credit score was substantial. Typically, the claim experience for the 10 percent of policyholders with the worst credit scores was 1.5 to 2 times greater than that of the 10 percent of policyholders with the best credit scores.The study examined 2 million vehicle years (one car being insured for one year is a vehicle year) and 600,000 house years. That trumps real or imagined anecdotes.

tcope said:Nope. What you have is 43 states that have not addressed the issue. Period.Wrong. Some of the states have examined the matter and concluded that credit scoring is a valid rate making tool.So instead of a 3rd independent party who is the attorney for an entire state saying it should be illegal, we should believe insurance companies who have a "slight' bias in the matter?Why would you consider an attorney an expert in insurance rate making? Maybe we should ask the Michigan Director of Agriculture what he thinks about insurance rate making. After all, he isn't tainted by bias, or knowledge for that matter. If you really want to put your faith in politicians, maybe you should consider the study I linked to from the Texas Department of Insurance, which is responsible for regulating insurers, that concluded that credit scoring is valid for rate making purposes.On top of that we should consider a study that is not even on point... as I've already mentioned?As I've already said. The study is on point. The fact that you don't understand it simply proves your ignorance.Again... again and again, my point is not that people with low credit scores don't file more claim (I'm not sure how clear I can be on that issue). I've said that credit histories don't show that people are less or more likely to incur a loss... which is what premiums SHOULD be based on.And what I keep saying is that you don't understand insurance rate making. Insurance companies have two issues to consider. The first is premiums that they collect, and the second is claims that they pay. Those are the only two things that they can consider. Those are the only two things that are legal for them to consider. Those are the only two things that they have data on which to perform statistical analysis.

You keep claiming, without any evidence whatsoever, that insureds with low credit scores have the same number of accidents as insureds with high credit scores, yet file more claims. If this is true, you should be able to prove it. Don't make up a fictitious anecdote to support your argument. Give me some numbers. And even if you could prove it, which you can't. It doesn't matter. Because accidents that result in no claim being filed don't affect an insurance company. Remember, the insurance company only cares about claims that it has to pay.Credit scores do show that people who _have already suffered a loss_ are more likely to FILE a claim. Rates should not be based on the likelihood that someone is going to actually hold an insurance company up to their promise to pay a claim.This is where your argument jumps the shark. Rates can ONLY be based on the likelihood of an insured filing a claim. Basing rates on anything else would be stupid, and illegal.