Rant Mode: ON - Insurance company practices

[TheAdvocate]

Here's some more info rather than just back and forth opinions:

First up, from AllState's public statement on credit report usage:

...The difference is that an insurance company considers only those items from credit reports that are relevant to insurance loss potential...

... The kind of information in credit reports that has proved relevant to calculating insurance risk includes bankruptcies, judgments, collections, and delinquencies. The number and the types of credit accounts a customer has, length of account history, are among other factors we consider.

Oh, so it's six and not a half dozen. Thanks for clearing that up. Seriously... check ISM7 for the list of what they sue to assign you a credit score to put in their insurance score:

Performance on Accounts and Public Records
Presence of a derogatory item in the past 5 years (other than one 30-day late payment)
Presence of a severely derogatory trade in the past 5 years
Number of collections in the past 5 years
Revolving trades currently 60-120 days past due
Number of payments 30 days late in the past year
Months since the most recent delinquency
Number of derogatory public records in the past 5 years
Months since the most recent derogatory public record
Amount currently past due
Number of Accounts
Number of trades in the past 5 years

That differs from what credit report information is used in a credit decision how??

Oh wait.. they answered:

As mentioned above, we consider only those items from credit reports that are relevant to insurance loss potential. Our model does not consider information such as income or net worth because we are not assessing our customers? credit-worthiness.

Because we all know your income and net worth are on your equifax report... not.

So their basic argument is HOW they're using the same info. And it boils down to - "we're using it to make an insurance pricing decision, not a credit decision".

I'm not disputing that. In fact, that's exactly my problem. They are using credit information to make a non-credit decision. It's ridiculous.

Oh, and while I'm at it, let's take a look at some more Orwellian doublespeak from Allstate...

We consider this information because of our ongoing concern about the accuracy of our risk evaluation, because it allows us to reward customers who are less likely to incur losses with lower premiums, and because it helps us make insurance more widely available.

...At Allstate, we?re finding that our use of credit information enables us not only to offer lower premiums to many customers who otherwise would pay more for their insurance, but to provide insurance coverage to more drivers and homeowners than we previously could.

They're not penalizing folks for having lower credit score by charging them higher rates, they're jusst rewarding better credit scores with better insurance rates...

SIX, not a HALF DOZEN.

And let's translate the "offering coverage to more people" phrases....

"Statutes allow us to charge high premiums to people with bad credit scores. This is extremely profitable because these are not credit risk decisions, so hell yes we're in the business. Thank you to our lobbyists. Good work boys."

The entire industry needs to be rehabilitated. These practices are dispicable exploits for enlarging profits on the basis of no additional risk. Frankly, I'm tired of it.

 

[TheAdvocate]

Originally posted by: Queasy
So we can't make comparisons to utilties, credit cards, or cell phones but you can make comparisons to the judicial system?

It's not a comparison when you are alleging fraud with no evidence.

 

[TheAdvocate]

Originally posted by: jbourne77

You can't be serious, right? I would think it's pretty obvious that one's credit worthiness would be directly tied to their insurance risk.

You would think incorrectly then. The point has already been proven that it's not.

 

[jadinolf]

Originally posted by: TheAdvocate

Originally posted by: jadinolf
Hard to believe but they associate your credit rating with your ability to accept responsibility.

Ridiculous, isn't it?

Interesting post there. Where exactly are they offering me credit? Insurance is pay as you go. No pay = no insurance. I miss a payment, they cancel it the next day. Why then is my credit score even relevent?

Awaiting your next flame.

Be patient.

 

[QED]

Originally posted by: TheAdvocate

Originally posted by: jbourne77

You can't be serious, right? I would think it's pretty obvious that one's credit worthiness would be directly tied to their insurance risk.

You would think incorrectly then. The point has already been proven that it's not.

Proven how? You haven't proved anything.

Use a little bit of common sense-- insurance rates are all about risk. Why should the insurance companies throw out a good source of information when trying to evaluate that risk?

Buying insurance is a relatively smal commitment... but offering a policy to someone is a BIG commitment. I fail to see how you don't realize that.

 

[TheAdvocate]

Originally posted by: QED

Why should the insurance companies throw out a good source of information when trying to evaluate that risk?

Because it's an invasion of privacy and there are better, actually relevant sources of information to make that decision from, such as your claims history. Ten years of no claims IS a claims history.

 

[mcvickj]

I don't have a huge problem with them looking at my credit report. However I don't think you should be penalized for shopping around to find the best rate. Lets say you contact 6 different companies to get a quote. How much of a beating would your score take? How long before it rebounds?

 

[QED]

Originally posted by: TheAdvocate

Originally posted by: QED

Why should the insurance companies throw out a good source of information when trying to evaluate that risk?

Because it's an invasion of privacy and there are better, actually relevant sources of information to make that decision from, such as your claims history. Ten years of no claims IS a claims history.

Look, I see where you are coming from.

I've felt the same way from time to time... especially when I was an 18-year old driver trying to get auto insurance and I got super high-rates simply because of my age.

You are right that claim history is a much better predictor of potential future claims than credit history... but credit history still has some correlation with potential claims so insurance companies would be foolish to not use it at all.

Obviously the insurance companies feel it gives them enough additional information to warrant asking for it-- it is not trivially easy or cheap to order and process credit reports so I don't think they are doing this on a whim.

 

[dullard]

Originally posted by: TheAdvocate
That whole industry is just FUBAR'd. I absolutely hate it with a passion.

Credit scores are a MAJOR factor in how often you file for insurance payouts.

Think about it. If you were quite well off, and you had great credit, are you really going to file for $100 (after deductions)? Probably not. You'd realize that you don't want to have higher insurance premiums and thus you'd pay for it out of pocket.

Now imagine you are struggling financially. Most likely your credit score will reflect this as you are stretched as thin as you can be. Are you now likely to file for that $100? Damn sure you will. You are so desperate, that you are willing to risk possible future higher insurance premiums because you really, really need that $100 now.

Credit score is one of the biggest potential factors deciding how much they will likely pay out to you. Studies prove it. Most insurance companies (and many other companies) use them. You don't need to be notified that they are basing the price on your credit score AND you don't know how they use the credit score. See the Aug 2006 Consumer Reports on this issue, it is one of their big fights for consumer protections.

 

[dullard]

I'll quote some of that article:

In the 1990s...statistical analysis of archived data from more than a million credit files found that 30 of 100 or so items in the reports correlated with payouts.

A study conducted in 2000 by James Monaghan, a reasearch strategist at Metroplitian Property and Casualty Insurance Company, found, for example, that people whose oldest account on their credit report dated back 25 to 29 years subsequently filed only $60 worth of claims for every $100 of premiums paid over the next three years. But people whose oldest account was only a year old filed $95 in claims per $100 of premiums over the ensuing three years.

...

"People with a pattern of irresponsible financial behavior and poor credit history have a much greater chance of being in an accident or filing a claim."

5% profit vs. 40% profit. And that is just one of those 30 important factors in your credit report. Are you really going to argue that this is meaningless to the insurance companies?

 

[Queasy]

Originally posted by: mcvickj
I don't have a huge problem with them looking at my credit report. However I don't think you should be penalized for shopping around to find the best rate. Lets say you contact 6 different companies to get a quote. How much of a beating would your score take? How long before it rebounds?

Not much. It is no different than going around mortgage hunting. If you're credit report is showing multiple inquiries to the same industry (ie mortgage or insurance) within a certain timeframe (say a month or so) then the scoring will likely treat all those inquiries as one.

They all roll off your credit report after 12 months.

 

[sourceninja]

Originally posted by: altonb1

Originally posted by: EagleKeeper

Originally posted by: TheAdvocate

Originally posted by: jadinolf
Hard to believe but they associate your credit rating with your ability to accept responsibility.

Ridiculous, isn't it?

Interesting post there. Where exactly are they offering me credit? Insurance is pay as you go. No pay = no insurance. I miss a payment, they cancel it the next day. Why then is my credit score even relevent?

Awaiting your next flame.

Insurance is a pay as you go from your side of the fence.

However, if you make a claim, they are the ones on the hook.
If you have a credit problems, then the potential may exist for filing a false/inflated claim.

Look at some of the rip-offs that are attempted each year by hurricane victims.

Fine...prosecute the FRAUD and let the average person pay for insurance based on the value of the property being insured. There are a lot of legitimate reasons why someone's credit may have suffered a setback--unplanned medical bills, loss of job, etc. Those are unfortunate situations that happen every day. Why punish the person 2-3 or more years later for a few bad months? Especially when it comes to pay-as-you-go things like insurance?

I agree with the OP. The reason my property insurer is not also my auto insurer is directly based on the fact that they use credit scores as a basis for auto insurance rates. My credit sucked for a bit after 9/11 because I was out of work. I have been at the same job now for over 4 years and doing very well. However, my credit score is still lower than I would like and when factored into insurance rates, I take a hit. So I went to GEICO and am happy with them.

The added cost of going after frauds is of course woven into their charges to the average honest man.

 

[homestarmy]

Originally posted by: altonb1
There are a lot of legitimate reasons why someone's credit may have suffered a setback--unplanned medical bills, loss of job, etc. Those are unfortunate situations that happen every day. Why punish the person 2-3 or more years later for a few bad months? Especially when it comes to pay-as-you-go things like insurance?

Then there are those of us who make sure we don't have bad months. If we do, we responsibly fix them, even if it means working extra, not having luxuries, etc...

 

[TheAdvocate]

Originally posted by: dullard
I'll quote some of that article:

In the 1990s...statistical analysis of archived data from more than a million credit files found that 30 of 100 or so items in the reports correlated with payouts.

A study conducted in 2000 by James Monaghan, a reasearch strategist at Metroplitian Property and Casualty Insurance Company, found, for example, that people whose oldest account on their credit report dated back 25 to 29 years subsequently filed only $60 worth of claims for every $100 of premiums paid over the next three years. But people whose oldest account was only a year old filed $95 in claims per $100 of premiums over the ensuing three years.

...

"People with a pattern of irresponsible financial behavior and poor credit history have a much greater chance of being in an accident or filing a claim."

5% profit vs. 40% profit. And that is just one of those 30 important factors in your credit report. Are you really going to argue that this is meaningless to the insurance companies?

I haven't argued that it's meaningless to them. The point is, its irrlevent from the consumer's standpoint and therefore an unjustified invasion of privacy. I can find a leigitmate profit oriented interest in data mining consumers on a variety of bases, but that doesn't make them justifiable or legal. There are many types that are not legal. When I get a chance I'm gonna take a look at the legislative history of the clause in my state's general statutes that authorizes credit score referencing for insurance companies. I'm willing to bet right now that the insurance lobby had it put in. Because they had a reason to or could buy the insertion doesn't validate it either ethically or constitutionially.

 

[Nyati13]

Originally posted by: Heisenberg
Your entire life is based on your credit score. You pretty much have to deal with it or buy a cabin in Montana somewhere.

And they'll pull your credit report when you buy the cabin!!!

 

[TheAdvocate]

Originally posted by: homestarmy

Originally posted by: altonb1
There are a lot of legitimate reasons why someone's credit may have suffered a setback--unplanned medical bills, loss of job, etc. Those are unfortunate situations that happen every day. Why punish the person 2-3 or more years later for a few bad months? Especially when it comes to pay-as-you-go things like insurance?

Then there are those of us who make sure we don't have bad months. If we do, we responsibly fix them, even if it means working extra, not having luxuries, etc...

You are speaking like someone who does not understand the business of being a sole proprieter or a guarantor on a commercial loan. Businesses fail, even when good people work hard. If you are a sole operator, a partner, or just a guarantor on a loan, your credit can get dinged as a result and it has nothing to do with your character or self restraint. Your argument generalizes that all bad credit scores=people buying consumer goods they don't need or cannot afford. That is not the case.

 

[Nyati13]

Originally posted by: TheAdvocate

No, I see them. They just don't make any sense. If you're worried about pre-detecting fraud, then check my claims history, which they have.

Noone is trying to say that it makes sense. They are just explaining why Insurance companies pull credit reports. Explaining why in no way indicates advocacy for.....

 

[QED]

If your average slumlord has the capability to ask for a credit report, what makes you think insurance companies shouldn't?

 

[TheAdvocate]

Originally posted by: Queasy

Originally posted by: mcvickj
I don't have a huge problem with them looking at my credit report. However I don't think you should be penalized for shopping around to find the best rate. Lets say you contact 6 different companies to get a quote. How much of a beating would your score take? How long before it rebounds?

Not much. It is no different than going around mortgage hunting. If you're credit report is showing multiple inquiries to the same industry (ie mortgage or insurance) within a certain timeframe (say a month or so) then the scoring will likely treat all those inquiries as one.

They all roll off your credit report after 12 months.

Mortgage company inquiries fall under the 45 day rule (multiple inquiries = 1 single ding on your score). I believe auto loans do to.

Insurance quotes do not. Each one nails you. The "work around" is calling it a "soft request" which doesnt hurt as bad.

Regardless, this ignores my point that they shouldnt be looking at your credit report anyway. This is the same way social security numbers were co-opted to track and index you and create the entire credit score industry in the first place. Somehow in that process, your history no longer became your property. Others could buy and sell it at will (some recent regulation ha sthankfully, but barely, limited it).

I am a little suprised by how much some of you seem willing to embrace an Orwellian future. It's really not tinfoil hat land, this stuff is happening here and now.

 

[ruffilb]

Originally posted by: jadinolf
Hard to believe but they associate your credit rating with your ability to accept responsibility.

Ridiculous, isn't it?

 

[QED]

Originally posted by: TheAdvocate

Mortgage company inquiries fall under the 45 day rule (multiple inquiries = 1 single ding on your score). I believe auto loans do to.

Insurance quotes do not. Each one nails you. The "work around" is calling it a "soft request" which doesnt hurt as bad.

Soft pulls do not affect your credit score.

I am a little suprised by how much some of you seem willing to embrace an Orwellian future. It's really not tinfoil hat land, this stuff is happening here and now.

What is so Orwellian about a company wanting to know who it does business with and their track record?

Did you know that you have the capability yourself to check your potential insurer's liability rating to ensure they are the kind of company that will be there to pay out when you have a claim? So should insurers be allowed to refuse to disclose such information?

 

[KentState]

Originally, I couldn't see why this was such a big deal, but I'm changing my mind. The question is, how far will an insurance company want to dig into someone's life. When will an actuary determine that your medical records are also a good indication of liability? What other personal information will gradually be tapped into to determine what you are good for?

 

[JS80]

Originally posted by: TheAdvocate

Originally posted by: EagleKeeper
Insurance is based on the expenses/exposure of risk of a claim.
Premiums reflect such risk.

If you do not like the way the insruance company determines the risk, then go to another.
You may end up paying a higher premium accodingly and/or not having insurance.

Self insure if you do not like the rules.

...or option #4 - fight the system by creating a grass roots privacy campaign, which i'm seriously considering doing. I've been talking to some colleagues about the issue for a while (about cell phone companies too). There's an enormous lobby to battle, but the difficulty of the fight shouldn't and doesn't effect whether or not we should do it. My credit is fine. I would just barely have standing in a lawsuit. I'm just sick of the practice.

wow you people never think about the consequences:

Now the risk to insurance companies goes up due to uncertainty and lack of information. Congrats, you just helped everyone's premium to go up.

More information available = less in premiums (aggregately)

 

[JS80]

Originally posted by: TheAdvocate

Originally posted by: Queasy
So we can't make comparisons to utilties, credit cards, or cell phones but you can make comparisons to the judicial system?

It's not a comparison when you are alleging fraud with no evidence.

Alleging fraud =/= calculating risk of fraud

 

[JS80]

Originally posted by: dullard
I'll quote some of that article:

In the 1990s...statistical analysis of archived data from more than a million credit files found that 30 of 100 or so items in the reports correlated with payouts.

A study conducted in 2000 by James Monaghan, a reasearch strategist at Metroplitian Property and Casualty Insurance Company, found, for example, that people whose oldest account on their credit report dated back 25 to 29 years subsequently filed only $60 worth of claims for every $100 of premiums paid over the next three years. But people whose oldest account was only a year old filed $95 in claims per $100 of premiums over the ensuing three years.

...

"People with a pattern of irresponsible financial behavior and poor credit history have a much greater chance of being in an accident or filing a claim."

5% profit vs. 40% profit. And that is just one of those 30 important factors in your credit report. Are you really going to argue that this is meaningless to the insurance companies?

wow....pwnage of the year

game set match

/thread