Risk Prof spurred a bit of a debate over the use of credit scores as a rating tool, as recently approved by the Louisiana Ins. Commission. Commentators repeat the usual objections, usually with a minimal background in the science, logic and economics of insurance pricing and risk selection. Risk Prof quotes and criticizes arguments from objectors that attempt to apply standards from civil rights cases to commercial insurance pricing.
One commentator, Joe Rotger, volunteers to "sacrifice and pay higher premiums" to avoid "blatant discrimination." All we need is a market filled with buyers who make decisions based on other than their economic best interest. Last I heard, those were hard to find. Hard enough to make it unprofitable to depend on it in a competitive world. And the various GEICO and Progressive ads offering lower rates would be a waste of money. My guess is they are more practical than Joe.
Another is willing to let "Joe" pay extra, but opposed to forcing that choice on everyone.
The key element is that credit scores do in fact correlate with claim ratios. Why? Hard to say, but its not important to the rating decision. If a positive correlation can be shown, making the discrimination not unfair, the law is satisfied. If the legislature wants to outlaw a scientifically demonstrated predictor of claim costs, let it be their call, not the insurance commissioner's.
I'm with Risk Prof and the Louisiana Ins. Commissioner on this one.
To join in the debate, visit: RiskProf : The Civil Rights-ing of Risk
Posted by dougsimpson at August 24, 2005 08:20 PM