Pure Speculation
The insurance industry speculates as to
why claims and credit correlate. As they feel free to speculate as to
this, consumer should feel free to speculate. The result : Many
Questions & Some Answers. Share your theories and to blow
holes in these Perhaps then consumers can get to the bottom of this
practice.
Theory
#1
Auto Insurance is required by
law in most if not all states. Due to this and the practice of
insurance credit scoring, the insurance industry now has one of the
most
complete files on any individual. This information
includes:
Your name, address, beneficiaries,
Social Security number, family member information, assets,
income, property locations and values, your transactions with
them, their affiliates, and others, your account balances,
policy coverage, payment history, the premium you pay, the shares you
purchase, preferences, claims information, method of
purchases, reports from consumer reporting agencies, motor vehicle and
driver data, loss history reports, additional driver data, and in some
cases, even your medical and employment information.
This information is very valuable, not
to mention private and they can share it with anyone. And just try to
find a way to opt out of this, if you did not find the enclosure in tiny
print in your envelope, you have no way of opting out. (And you
can only opt out of third party sharing, affiliate sharing is a
given.)
If you want a copy of the file, you
must send a notarized request to them. They do not have to send
the complete file and they state they do not charge for this
information but if you request it, they can decide to charge a
reasonable fee. All this for your file that they share with their
affiliates freely! In addition, any mistakes in this file must be
taken up with the third party supplying the information, they have no
control over the information the file contains.
Theory #2
Your insurance credit score is
more than likely figured on software put out by Fair Isaac or
Tillinghast-Towers & Perrin.
Insurance models can be used for
underwriting, retention, cross selling, claims handling, prospect
targeting and collections.
Due to the success upon the
release of consumer lending scores, these companies are conducting
market research to see if consumers would indeed be interested in
knowing their insurance credit score. This is after they claim that one,
you would not understand them and two, knowing the score could cause
behavior to change and the models to skew. As these scoring model
companies have a vested interest, their research and arguments should be
examined closely. By convincing the insurance industry that claims
and credit correlated, they have opened a whole new market for their
products and now may be able to open an additional consumer market.
Mr. Birnbaum lent this theory
credence when he wrote,
"The
"evidence" supporting the correlation claim comes almost
exclusively from these credit scoring vendors and they refuse to
divulge the methodology of these studies, details of the study results
and/or the underlying data for independent verification.
For those studies about which some
information is known, the industry claims become more suspicious. For
example, Fair, Isaac continues to bring out the Tillinghast
"study" as support for the correlation – even though the
NAIC Credit Reports subgroup dismissed the "study" as
"counterproductive and misleading"."2.
And if that is not enough, consider this
quote, originally stated in Fair Isaac's 1999 report, "Predictivesness
of Credit History for Insurance Loss Ration Relativities" and
referred to in the AIA paper. (this is a direct quote!)
"Other fields than insurance or
financial services have used these same techniques to discover
relationships, without identifying causal relationships between
particular genes and symptoms of diseases such as Alzheimer's,
Parkinson's, and Huntington's was hailed as a medical breakthrough, even
though the causal relationship remained unknown."3.
Insurance Credit scoring is in no way a
'breakthrough' and do you want to bet that the medical community is
pouring money into finding out why? The insurance industry has no such
desire.
Theory
#3
The insurance industry does have all the
information in order to determine your income. The only proof we have
that they are not is the "word" of the scoring model vendors
who state that income is not included or considered. So do insurance
companies use your income? Isn't income an important part of knowing
whether a consumer is financially responsible or not? And are they
telling the truth? When shopping for insurance, an agent will ask your
occupation and that is entered into the scoring model. The industry has
access to a database provided by Acxiom, that relates the average salary
of any given occupation. As the occupation is entered into the scoring
model, it casts doubt onto the industries claim that income is not
considered.
"As shown above, important
consumer credit characteristics are related to the income level of the
consumer. Thus, credit scoring is, for insurers, an easy and quick
method of underwriting and rating by consumer income. And insurers
have apparently determined than underwriting and rating by income is
the key to greater profitability."2
Things
that make you go hmmm??
