Philster said:nycll said: Let's say Fico is something they can't use. But in CA (and Hawaii), what happens if the insurer includes some credit factors, such as delinquency, bankruptcy history in the underwriting model, which mostly should rely on auto specific factors such as age, gender, make and model of the car, driving record, etc?

This is what I alluded to when I said companies could use surrogates.

However, they can't just use bankruptcy history, they have to demonstrate that bankruptcy history is predictive of insurance loss costs. This is a far form trivial undertaking. They have their own customers loss history, but they don't have a record of their own customers bankruptcy history, so doing the study is enormously expensive. This is the type of study that the credit agencies can do, and did do, when they came to the insurance companies to sell their service.

In addition, the insurance departments prohibiting the use of credit aren't going to roll over and simply allow the underlying factors that go into a credit rating. They aren't idiots. A company might select one factor, and modify their existing rating plan a bit (camel's nose), and over decades, might get there, but they cannot simply reproduce the credit agency's work and expect it to be approved (without even considering the enormous effort to do so.

PhilIf you have some concrete knowledge on the exact position of the states' on credit factors I'd appreciate you share it. But just saying building a model is complicated isn't very convincing. Of course there need to be efforts and costs. But neither is much. The math behind it is pretty basic. The fees CRA charges are pretty low for each SS#, which I believe each policy holder must provide. I wouldn't be surprised that companies have long accomplished that.

If the insurance departments are not idiots, why they disallow the use of credit to underwrite? Also to demonstrate a credit factor matters is not mere burden to satisfy the regulators--the company needs to make sure of that for its bottom line.

nycll said: Of course there need to be efforts and costs. But neither is much. The math behind it is pretty basic.

The complexity of the math isn't the critical element of the costs, although I must say I don't run into too many people who would characterize multiple regression as "easy". (And if that was your point, the multiple regression talk in undergraduate statistics courses is not close to sufficient - properly understanding how to do multiple regression with real data is significantly harder than the simplified examples in math class.)

The bigger stumbling block is the sheer volume of data needed, and the nontrivial effort to match it. Remember, we are talking about how to integrate credit score into a rating system, we are talking about how to integrate the raw material - bankruptcy records, payment records, length of time at residence, and other factors into a rating system. This is harder than you suggest. If you really think you could do a quality job for under 100K, I can find companies to hire you. But I think you are missing a zero.

Phil

nycll said:The insurers have not need to make a credit scoring system. What they need is an automobile risk system which would ideally look at credit as one of the factors. Let's say Fico is something they can't use. But in CA (and Hawaii), what happens if the insurer includes some credit factors, such as delinquency, bankruptcy history in the underwriting model, which mostly should rely on auto specific factors such as age, gender, make and model of the car, driving record, etc?I think you're misunderstanding my use of the term "credit scoring". I'm not talking about a specific, proprietary model from Choicepoint (the most popular model used in the insurance industry). I'm talking about any rating model that uses information from your credit report.

If an insurance company goes to the California regulators and says, "We've got this new rating model where we pull the insured's credit report and ..." That's where the regulators interrupt and disapprove it. It doesn't matter what credit factors you look at.

Thanks makes sence, thanks for the feedback

rzyzzy said:Sure, blame this on politics, communism, and restraint on the "free market". Anything except corporate greed. It's a forgone conclusion that insurance companies MUST collect more than they pay out to survive.That's your beef? A private company not wanting to go bankrupt (i.e., make a profit)? I don't consider a private company desiring to make a profit as greedy. I wouldn't consider you wanting to be paid a fair wage for your work greedy.The problem is when they come up with junk science to support increased fees for everyone.Credit scoring algorithms used by insurance companies are usually revenue neutral. They surcharge the lowest scores, but discount the highest scores.I'm quite certain given enough red bull and phd students you could produce a 100 page document showing that people who wear blue socks are more likely to drive into trees.Statistics is a tool to uncover correlations and causalities that already exist. Statistics can't create a causality out of nothing. If you don't understand that, just keep quiet while people more educated than you decide the issue at hand.The bottom line is that the insurance industry makes money by creating these divisions amongst people. By producing a plausible lie, they are able to charge everyone more, and distract from the real issue, which is their own unfettered greed. It wasn't that long ago that they were charging people more for driving red cars - "the color of blood, the driver must have a secret deathwish".More ignorance. Insurance is a business that distributes risk from one person to many people. There are many distinctions that insurance companies make so that riskier drivers pay more than safer drivers. Most people who understand, at least at some minimal level, insurance or math don't begrudge insurance companies the opportunity to appropriately price risk. Do you consider an insurance company surcharging drivers with multiple DUIs to be "charging everyone more?" Of course not. They charge habitually unsafe drivers more, which allows them to charge safer drivers less. Credit works the same way. Companies can charge drivers with the highest credit scores about half the premium of drivers with the lowest credit scores. That's because drivers with the lowest credit scores cost insurance companies about twice the amount that drivers with the highest scores do.

As for the red car myth, it is true that drivers of red cars tend to pay more in premium than other drivers. But it's also true that insurers don't surcharge for the color of the car. This is because sportscars tend to be red, while minivans tend not to be. So, again, someone who doesn't understand statistics or causality concludes that mean old insurance companies have a red car surcharge just to pick on the poor old consumer.Insurance companies want to absorb no risks and charge everyone as much as possible. The "free" market isn't actually free in this case, the insurance companies have bought themselves lots of influence in our government.Sure insurance companies want to do that. Every company would love to make infinite profit. Do you want to win the lottery? Of course you do. The problem with the proposition is that we have a free market. If you start the Rzyzzy Insurance Company and you set your rates so that you will make 50% profit on every dollar in premium you collect, guess what will happen? I will see how nicely you're doing and start the Barefool Insurance Company to make 40% profit and steal all your customers away. You might respond to make 30% profit, or a third company might enter the fray to do it, and pretty soon you've got what economists call competition. This competition drives costs down to a reasonable profit level. It's called the free market. No government intervention needed.BTW, I love the "study" you quoted showing "no need for regulation" of insurance companies - if you want some more convincing paper for your collection, I have a nice deed that shows a plot of land on the Pacific ocean, just a few miles from Phoenix Arizona.Nice refutation there. I notice you addressed exactly zero of the points in the paper. Color me shocked. I hope you didn't strain yourself.

barefool said:rzyzzy said:Sure, blame this on politics, communism, and restraint on the "free market". Anything except corporate greed. It's a forgone conclusion that insurance companies MUST collect more than they pay out to survive.That's your beef? A private company not wanting to go bankrupt (i.e., make a profit)? I don't consider a private company desiring to make a profit as greedy. I wouldn't consider you wanting to be paid a fair wage for your work greedy.The problem is when they come up with junk science to support increased fees for everyone.Credit scoring algorithms used by insurance companies are usually revenue neutral. They surcharge the lowest scores, but discount the highest scores.I'm quite certain given enough red bull and phd students you could produce a 100 page document showing that people who wear blue socks are more likely to drive into trees.Statistics is a tool to uncover correlations and causalities that already exist. Statistics can't create a causality out of nothing. If you don't understand that, just keep quiet while people more educated than you decide the issue at hand.The bottom line is that the insurance industry makes money by creating these divisions amongst people. By producing a plausible lie, they are able to charge everyone more, and distract from the real issue, which is their own unfettered greed. It wasn't that long ago that they were charging people more for driving red cars - "the color of blood, the driver must have a secret deathwish".More ignorance. Insurance is a business that distributes risk from one person to many people. There are many distinctions that insurance companies make so that riskier drivers pay more than safer drivers. Most people who understand, at least at some minimal level, insurance or math don't begrudge insurance companies the opportunity to appropriately price risk. Do you consider an insurance company surcharging drivers with multiple DUIs to be "charging everyone more?" Of course not. They charge habitually unsafe drivers more, which allows them to charge safer drivers less. Credit works the same way. Companies can charge drivers with the highest credit scores about half the premium of drivers with the lowest credit scores. That's because drivers with the lowest credit scores cost insurance companies about twice the amount that drivers with the highest scores do.

As for the red car myth, it is true that drivers of red cars tend to pay more in premium than other drivers. But it's also true that insurers don't surcharge for the color of the car. This is because sportscars tend to be red, while minivans tend not to be. So, again, someone who doesn't understand statistics or causality concludes that mean old insurance companies have a red car surcharge just to pick on the poor old consumer.Insurance companies want to absorb no risks and charge everyone as much as possible. The "free" market isn't actually free in this case, the insurance companies have bought themselves lots of influence in our government.Sure insurance companies want to do that. Every company would love to make infinite profit. Do you want to win the lottery? Of course you do. The problem with the proposition is that we have a free market. If you start the Rzyzzy Insurance Company and you set your rates so that you will make 50% profit on every dollar in premium you collect, guess what will happen? I will see how nicely you're doing and start the Barefool Insurance Company to make 40% profit and steal all your customers away. You might respond to make 30% profit, or a third company might enter the fray to do it, and pretty soon you've got what economists call competition. This competition drives costs down to a reasonable profit level. It's called the free market. No government intervention needed.BTW, I love the "study" you quoted showing "no need for regulation" of insurance companies - if you want some more convincing paper for your collection, I have a nice deed that shows a plot of land on the Pacific ocean, just a few miles from Phoenix Arizona.Nice refutation there. I notice you addressed exactly zero of the points in the paper. Color me shocked. I hope you didn't strain yourself.

And anyone who disagrees with you is "ignorant"? I never said I believed insurance companies should work for free, that's a product of your Fox "News" Network brainwashing. What I DID say was that the "science" used to justify high rates for everyone is garbage. Everyone has a something about them that could be used with enough junk science to "prove" them to be an increased risk.

Your banter about "free markets" and pandering to all of the "smart people" at insurance companies is nauseating. Get over yourself.

rzyzzy said:Sure, blame this on politics, communism, and restraint on the "free market". Anything except corporate greed. It's a forgone conclusion that insurance companies MUST collect more than they pay out to survive. The problem is when they come up with junk science to support increased fees for everyone. I'm quite certain given enough red bull and phd students you could produce a 100 page document showing that people who wear blue socks are more likely to drive into trees.It's not junk science just because you say so. As far as greed, greed doesn't mean the science behind the method is faulty. Most on FWF does have a science background, FYI.

As a consumer, why would you want to pay for higher risk driver?

ZenNUTS said:rzyzzy said:And anyone who disagrees with you is "ignorant"? I never said I believed insurance companies should work for free, that's a product of your Fox "News" Network brainwashing. What I DID say was that the "science" used to justify high rates for everyone is garbage. Everyone has a something about them that could be used with enough junk science to "prove" them to be an increased risk.

Your banter about "free markets" and pandering to all of the "smart people" at insurance companies is nauseating. Get over yourself.Even by internet standard, that's getting quite pathetic.I think rzy is describing what a monolopy could do. Thankfully most insurance markets aren't monopolies or heavily colluded.

rzyzzy said:
Why are so many with a "science background" so willing to believe that a credit score is a better predictor of insurance claims than, oh, I dunno, a DRIVING RECORD?Is this the whole sticking point? It would be silly for a car insurer to drop the driving related factor and underwrite by credit. It is not a frigging bank! But it better to add credit factors in the underwriting model than not to. By better I mean it is better for the business. But in a market with competition, that would mean it is better for the consumers.

nycll said:California is a big enough state for the insurers to pool their resources together to change the regulation, especially it is something that makes sense. Any history about how it ends up that way in CA?Innovation in the industry usually occurs in the states with the friendliest regulatory environments. California is a fairly liberal state, which usually means a less than friendly regulatory environment for insurance. Credit scoring is also fairly new. Ten years ago, nobody used credit for rating purposes. Today, most states allow credit to some extent. Ten years from now, every state will probably allow it.

The issue may be decided in court. Michigan has banned credit in auto and homeowners insurance rating, but the industry filed suit and won, then lost on appeal, then won again, and now the issue will be decided by the Michigan Supreme Court.