Thursday, September 28, 2006

Insurance Gouging the Insured

Oregon has a measure on the ballot (Number 42) that would stop the use of credit reports to determine automotive insurance costs. There claim is that without this tool the average insurance cost would go up. The reasoning given is people with poor credit are more likely to be involved in accidents then those with bad credit. If the insurance company can’t properly assign risk they will have to expand the cost to cover all potential loss across all customers. Many are making the argument that they are unwilling to supplement poor credit holders.

The first problem with the argument is demonstrating that those with poor credit have more accidents proportionally against the general population. Where is the study that demonstrates how the customer base stacks up credit wise verses those who are involved in accidents? This study would have to demonstrate a major tendency.

Let me also point out that we have had a huge swing in credit after 9/11 and the many stock scandals such as Enron. Those who had no credit concerns at all are now faced with financial peril at no cause of their own. Should their credit, destroyed by others, be allowed to further punish them in extra insurance expenses?

I know those who faced long unemployment who tried everything to keep their bills paid, but found themselves constantly falling backwards. Many of you probably know those who lost cars or homes because of actions outside of their control with situations similar to this. Should we further punish those who have suffered so much? I know there are those who abuse credit and should reap what they sew but how do we separate the wheat from the chaff?

Those who wish to attack me for not understanding insurance, and how risk is calculated, let me point out I am insurance licensed in two states. I do not speak out of ignorance but wish to point to full disclosure. We need honest and fair systems in all areas and I haven’t seen due process take place in order to prove that credit worthiness ultimately determines insurance risk.

I would like to further suggest that those who have the most to lose generally are the most cautious. So would it not follow that someone with little financial means would take extra steps to avoid a loss? Many today are upside down with their car. (They owe more then it is worth.) Insurance generally only pays fair current market value, so most would still have a substantial debt after an accident. These people would be left with no car and even more debt. Credit companies do not treat these remaining debts with equal courtesy when the car is removed from the collateral side. Who with little means would want to be left in this condition?

I stand that credit and risk for auto insurance has not been proven to be tied together. Bring on the studies and prove me wrong? I’m big enough to handle it.

Consumer Reports positive review of Measure 42
Oregon Catalyst negative review of Measure 42

Update: I heard someone argue that if it didn't work other insurance companies would advertise the fact they don't use it and gain more business. This would ultimately push this off the list of useful tools. This arguement has a small degree of credability for new drivers or newly insured. The problem is human nature establishs us as creatures of habit. If we have a habit of good driving and clear records then we probably have ample evidence to demonstrate that credit is not needed as a factor. If credit was used we would have to demonstrate that poor credit is a result of bad habits and not a significant event out of the control of the applicant. Your current credit score would have to be tossed for something demonstrating long term poor judgement skills. Since this is not part of the plan I would opt for approving this measure and stop the prying until solid rules can be applied.
Our credit is currently being used far to broadly and exposing people to unnecessary risk. Every few weeks we hear of another major blunder where peoples personal data is lost of stolen. Why establish another pool of data putting people at risk?

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Anonymous Anonymous said...

That's interesting... I guess people who are more impulsive are more likely to have credit problems and also get imto accidents, but it seems like a bit of a broad generalization to make.

3:36 PM, September 28, 2006  

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