Friday, September 29, 2006
A Measure of Sanity in Oregon?
Insurance companies can use a person's gender and age--not only things like driving record, the number of tickets, accidents, or arrests for driving under the influence--to determine what they pay for insurance. Oregon voters will decide in November if insurers should be able to use a person's financial history, too.
In 2003, the Oregon State Legislature prohibited insurance companies from using credit scores to set premiums or cancel policies for existing customers. This year's ballot proposal, Measure 42, expands this protection by prohibiting insurers from using credit scores or credit worthiness to set premiums for new customers. The measure applies to medical, health, accident, automobile, fire and liability insurance.
A growing number of consumer advocacy groups support Measure 42 because credit scores can be based on inaccurate information and can therefore be unfair when used to price insurance. A 2002 study by the Consumer Federation of America estimated that tens of millions of Americans are unfairly penalized for incorrect information in their credit reports. More recently, a 2004 survey by the U.S. Public Interest Research Group found that one in four credit reports contained errors serious enough to cause consumers to be denied credit, housing, or even a job. Other studies suggest that the use of credit scores for insurance has a disproportionately negative impact on low income and minority families.
Insurance companies have kept their scoring formulas secret, preventing an independent, public review of the actuarial soundness of their scoring models. There is no single mathematical model for how insurers use credit information to influence insurance decisions or for how they derive insurance scores from credit information. It’s hard for consumers to gauge what they can do differently to increase an insurance score, or even to know what factors are viewed more favorably by different insurers.
The insurance industry has argued that drivers with low credit scores are more likely to get into an accident, even though there is no evidence to support such a claim. Insurance companies also maintain that there is a correlation between a low credit score and a higher chance of filing a future claim; the current practice of using credit histories to help calculate rates allows 60-70% of Oregonians to enjoy lower rates. If Measure 42 passes, they claim, responsible consumers would be forced to subsidize higher risk consumers through the payment of higher premiums.
In 2003, the Oregon State Legislature prohibited insurance companies from using credit scores to set premiums or cancel policies for existing customers. This year's ballot proposal, Measure 42, expands this protection by prohibiting insurers from using credit scores or credit worthiness to set premiums for new customers. The measure applies to medical, health, accident, automobile, fire and liability insurance.
A growing number of consumer advocacy groups support Measure 42 because credit scores can be based on inaccurate information and can therefore be unfair when used to price insurance. A 2002 study by the Consumer Federation of America estimated that tens of millions of Americans are unfairly penalized for incorrect information in their credit reports. More recently, a 2004 survey by the U.S. Public Interest Research Group found that one in four credit reports contained errors serious enough to cause consumers to be denied credit, housing, or even a job. Other studies suggest that the use of credit scores for insurance has a disproportionately negative impact on low income and minority families.
Insurance companies have kept their scoring formulas secret, preventing an independent, public review of the actuarial soundness of their scoring models. There is no single mathematical model for how insurers use credit information to influence insurance decisions or for how they derive insurance scores from credit information. It’s hard for consumers to gauge what they can do differently to increase an insurance score, or even to know what factors are viewed more favorably by different insurers.
The insurance industry has argued that drivers with low credit scores are more likely to get into an accident, even though there is no evidence to support such a claim. Insurance companies also maintain that there is a correlation between a low credit score and a higher chance of filing a future claim; the current practice of using credit histories to help calculate rates allows 60-70% of Oregonians to enjoy lower rates. If Measure 42 passes, they claim, responsible consumers would be forced to subsidize higher risk consumers through the payment of higher premiums.
