Insurance credit score
Credit assessment is a method of determining the likelihood that credit users will pay their invoices. Fair, Isaac began his work with the credit score in the late 50s and, since then, the score has been widely accepted by lenders as a reliable means of credit assessment. A credit score attempts to condense the credit history of a borrower into a single number. Fair, Isaac & Co. and the credit bureaus do not disclose how these scores are calculated. The Federal Trade Commission has ruled that this is acceptable.
Is not it interesting that the most important score in our financial lives, our consumer credit score does not even contain the full disclosure? As noted above, the Federal Trade Commission has ruled that Fair Isaac & Co does not disclose the algorithms used in this process, but what about consumer rights? While it is important to understand what a FICO score is, it is not the main topic of this document, it is insurance rates. So, where is the connection? Everyone in the audience knows that Fair Isaac tells us that there is a high correlation between people with bad credit and high-risk drivers. This notion is crazy and, from what I can see from this approach to the black box, there is no real causality between the two. This kind of reasoning is similar to a person’s conviction for something before he committed a crime. For example, suppose I do a study and the study shows that there is a high correlation between criminals and people with bad credit. Does this mean that just because you have bad credit, are you more likely to commit a crime and, therefore, should you have a profile or perhaps be locked up because it poses a risk to society?
This system discriminates against minorities, the disabled and, in my case, university students, among others. Fair Isaac & Co states that they can not show the sophisticated algorithms they use to calculate these correlations and scores because they fear leaving valuable information too expensive to develop and maintain. What about the cost to consumers who could pay higher tariffs or, in the worst case, even deny them insurance based on these practices?
Equality Act Credit Act prohibits creditors from considering race, gender, marital status, nationality and religion, but if you do not even know how these companies are calculating these scores, how would we know if the world is discriminating? This approach to smoking and mirror is what many government agencies do to discriminate and extort the American subtly.
What about extortion? As I reflect on this subject, extortion comes to mind. Webster defines extortion as “getting by force or constriction”. Using such groundless tactics, consumers are forced to pay higher rates. Firstly, 90% of all insurance companies use this procedure; Secondly, in the interests of society, legislation requires that all Americans with cars have motor insurance. Living in a country where it is practically impossible to live without a car does not represent a force to pay taxes? Also, let’s say you can not afford to buy a car with cash, in which case you can get liability insurance alone and save a lot of money; but, instead, apply for a loan, the bank will require to obtain a full coverage car insurance to cover them until the loan is paid. Although this case may not represent an extreme case of extortion, it gives reason to reflect on the connection.
Insurance companies promote themselves as representatives of tranquility, protection and security, but at what cost. During the last 10 years, I spent about $ 20,000 on car insurance, what did I ask? Easily less than half and total of a car. Is insurance only a legalized form of gambling protected by the government? The McCarran-Ferguson Act of 1944 exempts the insurance industry from antitrust laws, so here we are again without an option; Collusion is the rule, not competition. Where is the ethics of the legislators? Many states are screaming on this controversial topic and some states like California have had some success, but with superior government protection, what can consumers do?
Personally I wrote to the Governor of Pennsylvania on the subject, one of my main questions was:
“I am a worried citizen, I recently noticed that my car insurance rates were increasing at a considerable pace.
I studied the situation only to find out that my credit score was making a difference, not my driving record. “
The answer I received from the insurance department continues:
This letter is in response to your complaint submitted to the Pennsylvania Department of Insurance through the correspondence office of Governor Edward G. Rendell regarding the use of credit as a vehicle insurance underwriting instrument in Pennsylvania.
I have read your concerns and it appears that you are questioning your car insurance subscription. In particular, the use of credit to determine eligibility. Many different factors come into the signing of an insurance policy, such as the type of vehicle, drivers, position, etc. and, more recently, the history of credit. Pennsylvania law does not prohibit an insurance company from using credit as an instrument of subscription, provided it is made within the first 60 days of writing a policy. According to the law, an insurance company is granted a 60-day window from the start of a policy to determine if the policy complies with corporate guidelines.
In your letter you have indicated the credit rating in a part of the qualification structure and presumably must be approved by the Insurance Department. In effect, the credit rating is part of a company’s underwriting guidelines and the department only regulates the enrollment guidelines to the extent that they are not discriminatory.
In addition, federal law under the Fair Credit Reporting Act allows credit information to be used to underwrite financial and insurance transactions.