They’re “outraged” — are you?
Posted by ltoops@sbmedia.com in credit scoring, tags: credit scoring, minorities, raceI don’t know about you, but when I see the word “outrage” used in a headline in an insurance publication, I tend to sit up and take notice.
That’s exactly what happened last month, when I saw the headline in our sister publication National Underwriter about the reaction of some trade groups to Florida Commissioner Kevin McCarty’s support of legislation that would ban credit scoring.
So far the bills haven’t gone anywhere, but their very existence testifies to the ongoing rancor surrounding this touchy issue. Supporters like NAMIC and PCI point to the proven correlation between financial irresponsibility and the likelihood of filing an insurance claim and laud the method for its reliance on personal responsibility rather than income, sex, race or place of residence. Critics claim credit scoring is a “proxy for race,” and its use unfairly targets minorities and the poor.
My own not-so-empirical studies — e.g., conversations with agents — indicate something else. From what I’ve heard, producers aren’t that wild about credit scoring themselves, primarily because it presents another hurdle to clear before they can place coverage for a customer.
It’s also interesting to speculate on what impact, if any, our floundering economy will have on the credit score controversy. As unemployment and inflation keep creeping up and Americans dig themselves deeper into debt just to buy groceries and fill their gas tanks, will “bad” credit scores become an epidemic?
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First, I want to be clear that I am not speaking for the agency I work for and of which I am an officer. I am old school; in the business 35 years. Credit scoring is just another way for the haves to keep their foot on the have-nots so that they can never improve their situation, and make it harder for them to survive. It hides behind the claim of valid statistical correlations, but it is merely class warfare in reverse: the haves against the have-nots. It is nothing less then immoral and shameful. When it was implemented, I became ashamed of my industry. Following is why.
I am old school; in the business 36 years also have a degree in Sociology with an emphasis in research. I know about statistically significant correlations between the presence of one variable and another. The one thing hammered into us in college was that such correlations inherently do not assert there are causal connections between things; they are incapable of this. At best, all they can do is SUGGEST there MIGHT be a causal connection. There may be other factors not measured that contribute to the correlation and create the inference of causality with regard to the variable that was measured. For example, it is possible that there might be a statistical correlation between a particular range of the ratio of the length of a person’s right fore-arm to the length of his right pinky finger and accident frequency. If an insurer (or anyone) discovers this and the insurer doesn’t make this a determinant of premium, then it must explain why not, if it wants to continue to use credit rating as a determinate. I would think that if something like that happened, and the insurer used credit scoring but not the other, it would magnify the appearance of targeting certain ethnic groups. Further it is not impossible that a person with a bad credit score could fall within the lower-accident frequency range of the above described ratio. Why then shouldn’t the two cancel each other out? Or, why wouldn’t that prove the folly of credit-scoring? The important point here is that there is nothing in principal that disproves the possibility that myriad other interesting correlations could exist where one seems to blow up the inference established by the other. Further, the hypothesized causal nexus between low credit scores is indirect and makes a lot of what they think are plausible assumptions that are nothing more than speculations. On the other hand, no reasonably person would argue that continually driving in high-traffic areas or driving 25,000 miles a year v. 5000 miles, or having 1 moving violation v. 3 and so on, shouldn’t be valid determinants of a person’s premium. None of these is a stretch like credit scoring is.