NBC: Bad Credit Shouldn't Affect Car Insurance Prices, Experts Say. States Are Listening

[China]

Bad Credit Shouldn't Affect Car Insurance Prices, Experts Say. States Are Listening

 

Pedro Montenegro has an immaculate record between the wheel — he's never been in a car accident, nor gotten a driving ticket. He has also never in his adult life qualified for affordable car insurance.

 

That's something that Montenegro, 30, who earns a "good living" as a public relations staffer in Washington, D.C., says is inextricably tied to his poor credit score, which is in the low 500s.

 

Montenegro, who is Guatemalan-American, faces the same struggle confronting millions of drivers across the country who have stellar driving records but pay higher premiums because they have poor credit or no credit history. Those two factors are far more prevalent among consumers of color.

 

Having identified this disparity, and a lack of federal action, a growing number of states are seeking to ban the reliance of auto insurance providers on credit-based pricing. A few insurance companies, in states where it's possible, have put in place measures to rely exclusively on driving behavior to determine premiums.

 

“It’s part of this critical element of economic opportunity in society, where prohibitively high rates can prevent you from getting to and from your job, or getting your kids to where they need to be,” Heller said.

 

Reliance on credit-based pricing inherently harms consumers of color, consumer experts and economists say, simply by virtue of the fact that people of color are far more likely to have bad credit, or no credit at all. According to a 2019 study by the Urban Institute, a left-leaning social policy think tank, more than half of white households in the U.S. had a FICO credit score above 700, compared with just 21 percent of Black households.

 

Another 33 percent of Black households with credit histories had insufficient credit and lacked a credit score at all, the study found, compared to just 18 percent of white households that lacked credit scores. Studies show the numbers are similar in Hispanic households.

 

Because nearly every auto insurer relies heavily on credit scoring, in various proprietary formulas, to determine pricing, people of color disproportionately pay more for auto insurance, experts said, with considerable research to back it up.

 

Research by the Consumer Federation, for example, has found that in ZIP codes with predominantly Black residents, consumer premiums are 60 percent higher than in predominantly white ZIP codes. That difference can amount to upward of $3,300 a year on annual premiums, according to Consumer Reports research.

 

“Referring to this as modern-day redlining is accurate,” said Darrick Hamilton, a professor of economics and urban policy at The New School for Social Research.

 

Click on the link for the full article

[TheGreatBuzz]

I mentioned in the RTT about how Geico is screwing me.  I'm not starting a new thread for it so this will do.  Below is a letter I am going to send Geico.  Let me know your thoughts.

 

Quote

Hello.  My name is xxxxxx.  I have multiple policies with GEICO but the two I will be referring to here are Auto #xxxxxx and Homeowners #xxxxxxx.  I have also been a customer on and off for the last 25 years and as best as I can remember, have never had a claim paid by Geico.

A few months ago, I discovered mold growing in the basement of the house I had just bought.  Long story short, my claim was denied under a "seepage" exclusion.  Recently, I sumbitted a claim for my Auto policy.  This was for an RV and was denied due to the trailer being at a dealer on consignment.  It should be noted that I called Geico and updated the address on my policy to the dealer location and explained the situation to the person on the phone.  At no point was it mentioned that any damage to my vehicle would not be covered.  In an interesting coincidence,  I received in the mail today a policy renewal for my auto vehicle.  In the 18 pages I was sent, there is not a single mention of any exclusions.  A close review of boxes titled "Important Policy Information", "Policy Summary", "The Fine Print", and similar shows zero mention of any exclusions.

A little about me; I recently retired after 20 years in the Navy.  I am now a 100% permanently and totally disabled veteran after a serious accident on the ship.  That accident is also a large part of why I am selling my camper at all.  Amongst other physical disabilites, I also struggle with symptoms from multiple brain injuries. 

Geico's policies of hiding behind exclusions that they don't make their customers aware of is shameful.  Not only was I not told of these exclusions, I could not find them anywhere on the Geico app or in any email I have received from Geico in the last 12 months.  But in the two times I have needed Geico, I have been left holding my hat.  Great service from the Government Employee Insurance Company.  I am now left having to empty my savings of tens of thousands of dollars because these claims were denied.  That money was being used toward training my service dog.  Maybe the next Geico military commercial your company runs, you can just show them coming to repossess my dog.  Really drives your message home.  

To whomever is initally reading this, I know you probably don't make the decisions.  My issue is not with you and I mean you no disrespect.  You are grinding away for a big machine just like I did.  To whomever is the one that makes these decisons, please know that while I am just a line on a spreadsheet to you, I am a real person.  I am more than just some fine print from an insurance company. 

I am requesting an appeal of my denial decisions and also requesting that Geico review their policies and send an update to their customers that clearly lays out any exclusions in your policy.  Please keep in contact with me if Geico intends to address my claims in a timely manner.  I can be reached at xxxxxxxxx.  Next week I will be contacting the media, my elected representatives in government, and national veterans organizations to request they help bring light to these practices.  I hope to tell them that Geico has since fixed this despicable situation.

 

[LadySkinsFan]

I had GEICO insurance on my house in Virginia and all of my autos/RVs for years. When I moved to Texas, the rate for auto jumped really high. I sold my RV soon after and had renters insurance on my apartment. After the jump, I checked into several other companies. My daughter had State Farm so I went with them and got better rates. This May, State Farm increased their rates so I downgraded my auto policy to bare minimum and dropped comprehensive (1998 Tahoe) and got it reasonable again. I looked at other companies again today because renewal is November and the rates are outrageous. 

 

I never drive anywhere, I keep it in an apartment garage because I have to keep it plugged in due to battery drain, and it always passes inspection. I'm holding my breath for these next rates.

[PleaseBlitz]

It's pretty odd to me that some FinTech hasn't come along with a better pricing model that doesn't rely on credit scores. 

[The Evil Genius]

I get that not everyone has a good credit score..but a score that low has to indicate some financial risk, right (for an insurance company or anyone doing business with that person)?

Edited September 13, 2023 by The Evil Genius

[PleaseBlitz]

2 minutes ago, The Evil Genius said:

I get that not everyone has a good credit score..but a score that low has to indicate some financial risk, right (for an insurance company or anyone doing business with that person)?

 

Probably indicates it to some degree, but is a highly flawed proxy for the consumer's ability to pay and there are probably far better measures (but not as easy as simply pulling the consumer's credit). 

[tshile]

I guess I don’t understand what the association between paying bills on time and being a risk as a driver is. 
 

if someone could explain it then I’d be open minded about it. But otherwise - I don’t see it. 
 

add to that - in my view it’s better that more people be insured, not less, so that people are properly covered (lol) when something happens. So, not seeing an association between the two except that it may drive more people yo not have insurance, it seems like a bad practice to me. 

 

[The Evil Genius]

Are they also going to stop charging males under 26 more? 

[tshile]

Just now, The Evil Genius said:

Are they also going to stop charging males under 26 more? 

Are males under 26 more risky?

 

Thought they were but this isn’t exactly a topic I follow 

[The Evil Genius]

4 minutes ago, tshile said:

I guess I don’t understand what the association between paying bills on time and being a risk as a driver is. 
 

if someone could explain it then I’d be open minded about it. But otherwise - I don’t see it. 
 

add to that - in my view it’s better that more people be insured, not less, so that people are properly covered (lol) when something happens. So, not seeing an association between the two except that it may drive more people yo not have insurance, it seems like a bad practice to me. 

 

 

I suspect an argument could be made that someone with poor credit also has poor reasoning. And that if they were in an accident they might be more likely to be at fault or leave. 

 

I don't/wouldn't make that argument though.

 

Totally agree with more people being insured. 

 

2 minutes ago, tshile said:

Are males under 26 more risky?

 

Thought they were but this isn’t exactly a topic I follow 

 

Yes. So are people over a certain age but I don't think auto insurance companies put an age tax on them (or maybe they do?). 

Edited September 13, 2023 by The Evil Genius

[tshile]

On 8/11/2021 at 1:29 AM, China said:

Reliance on credit-based pricing inherently harms consumers of color, consumer experts and economists say, simply by virtue of the fact that people of color are far more likely to have bad credit, or no credit at all. According to a 2019 study by the Urban Institute, a left-leaning social policy think tank, more than half of white households in the U.S. had a FICO credit score above 700, compared with just 21 percent of Black households.

I get how, baring some association between credit and risky driving, this becomes something that (seemingly) affects people based on race when it shouldn’t. 
 

but… If you’re actually evaluating someone’s ability to borrow money and/or pay a bill, credit score makes sense, and this blurb doesn’t matter. 
 

it’s not your fault there’s a clear disparity in credit scores, and you shouldn’t be forced to shoulder that. 
 

if the disparity is because of some unfair practice or thing - fine, make the argument to fix that. But it’s not the job of the person lending money or offering a service to make up for that disparity. If credit score makes sense, then use it, and if there’s an unfair disparity find the right tree to bark up. 

3 minutes ago, The Evil Genius said:

I suspect an argument could be made that someone with poor credit also has poor reasoning. And that if they were in an accident they might be more likely to be at fault or leave. 

Oh I get, and even assume, that is the original reasoning. 
 

I can’t really think of another, except the industry recognizing a racial disparity and wanting to be racist so they implement this practice. But I don’t believe that’s what happened. 
 

But I don’t believe that’s a reasonable association. I have no data. But it doesn’t seem correct to me. 
 

I’d be more inclined to think the reasoning is: because we can. But I have nothing to back that up. 

[tshile]

So. I’m sorry but this article and narrative seems over the top lazy. They spend all this time talking about credit scores, they got their anecdotal stories, and they’ve certainly couched it as a problem of systemic racism. 
 

but if you spend a minute, cause that’s all I did, googling you’ll find there’s some pretty crazy disparities in traffic accidents, as well as the injuries related, between the different races. Native Americans being the worst, blacks the second worst, and in some cases the gap from there to the rest gets close to 300% depending on which set of data you’re looking at. 
 

and of course they didn’t spend one sentence on any of that sort of information 🙄

 

https://abcnews.go.com/US/racial-disparities-traffic-fatalities-wider-previously-estimated-study/story?id=85358202
 

https://www.forbes.com/sites/tanyamohn/2021/06/24/dying-in-a-traffic-crash-its-more-likely-if-you-are-black-or-indigenous/?sh=66c448bd49b5
 

https://www.ghsa.org/resources/Analysis-of-Traffic-Fatalities-by-Race-and-Ethnicity21
 

https://injuryfacts.nsc.org/motor-vehicle/road-users/disparities-by-race-or-ethnic-origin/
 

https://www.hsph.harvard.edu/news/press-releases/racial-disparities-traffic-fatalities/

 

Maybe credit rating has less to do with it, maybe it has to do with the disparity in accidents and injuries from accidents? Who knows? These people didn’t even try. 

My point is not to say we shouldn’t reevaluate the use of credit rating - I’ve already said I don’t see the association there. 
 

my point is just that there seems to be a bunch of things going on (and if you read the articles you’ll see they get into all modes of travel), and the main article didn’t even point out these other issues exist, much less show any effort to understand and correlate things. 
 

they just say - disparity in credit scores is causing people of color to pay more for insurances and that’s systemic racism 🙄

[Spaceman Spiff]

Insurance is the biggest ****ing racket of all time.  OF ALL TIME.  

 

 

[tshile]

1 minute ago, Spaceman Spiff said:

Insurance is the biggest ****ing racket of all time.  OF ALL TIME.  

 

 

Depends. I’ve found you usually get what you pay for. Cheap insurance is great - until you need it. Expensive insurance sucks to pay premiums for - until you need it. 
 

pooled risk so people don’t go bankrupt when someone goes wrong makes sense. The alternative is fine for people that don’t have things go wrong but that seems silly, not everything that goes wrong is your fault. 
 

a functional government that made sure people aren’t taken advantage of would be nice. That’s supposed to be their job …

[PleaseBlitz]

36 minutes ago, The Evil Genius said:

Are they also going to stop charging males under 26 more? 

 

35 minutes ago, tshile said:

Are males under 26 more risky?

 

Thought they were but this isn’t exactly a topic I follow 

 

I haven't looked into it, but it aligns with a topic I have delved extremely deeply into, which is that the human brain isn't fully developed until you are roughly 25 years old, and specifically the part of the brain that governs risk-taking. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3621648/

[tshile]

46 minutes ago, The Evil Genius said:

Yes. So are people over a certain age but I don't think auto insurance companies put an age tax on them (or maybe they do?). 

I don’t know I’d they do 😂 

 

Im not old enough yet. 
 

But simply being a bad driver may not be all there is to it. I would think cost of the accident matters. 
 

Old people drive slow an obnoxious - young people drive fast and reckless. It makes sense one may actually cause increased liability from a money perspective than the other. 
 

Same with male and female. In my experience (in the under 26 group) females suck at driving (as a general observation) but it makes total sense to me that males cause more costly accidents. I’d associate the problems with female drivers around slower speed issues - basically understanding the space their vehicle occupies. They make 5 point turns when 3 would do, for example. But males drive significantly faster, cut people off, and generally are just more aggressive and reckless. 
 

and that aligns with other research that shows females are better at assessing risk (among a long list of other things they’re better at, like leadership and emotional intelligence)

That said - I’d be curious if smart phones and the growth of distracted driving would cause the gap between male/female to narrow. They may not, as a demo, drive more aggressively but I’ve never see anything that shows there’s a similar gap in distracted driving. A high speed collision can happen with distracted driving even if the drivers were otherwise not aggressive 

Edited September 13, 2023 by tshile

[TheGreatBuzz]

49 minutes ago, tshile said:

Depends. I’ve found you usually get what you pay for. Cheap insurance is great - until you need it. Expensive insurance sucks to pay premiums for - until you need it. 
 

pooled risk so people don’t go bankrupt when someone goes wrong makes sense. The alternative is fine for people that don’t have things go wrong but that seems silly, not everything that goes wrong is your fault. 
 

a functional government that made sure people aren’t taken advantage of would be nice. That’s supposed to be their job …

 

Fair but there needs to be some expectation that if you have insurance, you can use it.

[Spaceman Spiff]

Car insurance is the Donald Trump of the insurances.

[LadySkinsFan]

17 hours ago, tshile said:

I get how, baring some association between credit and risky driving, this becomes something that (seemingly) affects people based on race when it shouldn’t. 
 

but… If you’re actually evaluating someone’s ability to borrow money and/or pay a bill, credit score makes sense, and this blurb doesn’t matter. 
 

it’s not your fault there’s a clear disparity in credit scores, and you shouldn’t be forced to shoulder that. 
 

if the disparity is because of some unfair practice or thing - fine, make the argument to fix that. But it’s not the job of the person lending money or offering a service to make up for that disparity. If credit score makes sense, then use it, and if there’s an unfair disparity find the right tree to bark up. 

Oh I get, and even assume, that is the original reasoning. 
 

I can’t really think of another, except the industry recognizing a racial disparity and wanting to be racist so they implement this practice. But I don’t believe that’s what happened. 
 

But I don’t believe that’s a reasonable association. I have no data. But it doesn’t seem correct to me. 
 

I’d be more inclined to think the reasoning is: because we can. But I have nothing to back that up. 

 

The insurance companies use statistics and those can be manipulated to support any position. The credit report thing is ridiculous because the insurance companies aren't lending money. If someone does pay their premium on time, the companies can cancel the policy, they do that regardless of credit history. What should matter is driving history of tickets, DUI, and accidents. When I was looking yesterday, they only inquired about three years back. I can't remember the last time I had any kind of ticket or accident (I think before my daughter was born, at least 45 years). 

 

I have one of those driving things from the insurance company that records speed, breaking, using cell phone etc. I get hit with braking because people here pull out or drive to the point where I have to brake. I do drive a bit slower but the speed limits where I go are between 45-50, so local. 

 

Everywhere I regularly drive are within 5 miles or 8 to my daughter's house. I drive about once a week. I've often considered selling the car but I like going to the grocery store and my various appointments by myself. My car is a 1998 Tahoe, it's a tank. 

[Corcaigh]

Insurance companies use big data for social network analysis that looks not only at your history but the history of your network, room mates etc.

 

This can impact their stance toward claims especially, if not upfront pricing.

[Ball Security]

16 minutes ago, Corcaigh said:

Insurance companies use big data for social network analysis that looks not only at your history but the history of your network, room mates etc.

 

This can impact their stance toward claims especially, if not upfront pricing.

Can you elaborate on this?

[Corcaigh]

1 hour ago, Ball Security said:

Can you elaborate on this?

If, for example, you share an address with someone with a history of claims, that will be identified for further analysis in the event of a significant claim by you.

 

It’s apparently common for fraud to occur if a person with a clean history starts associating with someone who makes frequent claims.

 

Here’s a blog post form on the the big software vendors offering products related to this:

 

https://blogs.sas.com/content/brightdata/2016/11/21/practical-guide-tackle-auto-insurance-fraud-social-network-analytics/

 

Edited September 14, 2023 by Corcaigh

[tshile]

49 minutes ago, Corcaigh said:

Insurance companies use big data for social network analysis that looks not only at your history but the history of your network, room mates etc.

 

This can impact their stance toward claims especially, if not upfront pricing.

They use a lot of stuff. And best I can tell - they don’t share how they use it, and don’t even necessarily share what they use except to provide a list of things that they might use (with no weighting on the items)

 

It seems a lot of assumptions are made in this article, and a lot of details are missing. It’s not even clear that they understand the basics of the formulas. 
 

I don’t have a problem with the idea of removing credit score - assuming there is no meaningful association - but the article heavily leans on the idea people are paying higher rates specifically because of that, and I’ve yet to see where that is backed up. 
 

as for your last comment about it being common for  fraud to start occurring once you associate with someone known to make frequent claims - I’ve read the credit ratings companies started doing the same thing years ago. They monitor your social media and if they see you start associating with people with low credit scores, it’s an indicator you may start having problems and it can affect your credit score. 
 

I understand why people knee-jerk reject such a practice, but to the best of my knowledge it’s backed up by actual behavior. People are who they associate with, for the most part, and you can draw meaningful inferences about behavior from associations. To the best of my knowledge, that’s backed up through lots of research in many different things. Including things as benign as what shows/movies/music should be recommended to you on steaming platforms. 

[TheGreatBuzz]

22 hours ago, TheGreatBuzz said:

I mentioned in the RTT about how Geico is screwing me.  I'm not starting a new thread for it so this will do.  Below is a letter I am going to send Geico.  Let me know your thoughts.

 

 

 

No one else has suggestions?  I know I'm not that good of a writer.

[LadySkinsFan]

I think it's a great letter. I've never submitted an insurance claim (health insurance excepted) for anything car or house. It's frustrating to know that we've spent thousands of dollars over a lifetime and when we really need the benefits paid for, suddenly there's some sort of denial. I'd be pissed too, Buzz. 

 

I hope you get something out of your letter. Contacting the people/organizations you mentioned at the end will help plus add your states insurance commission or whatever it's called.

 

As a formatting suggestion: organize the different people/organizations into bullets with actual names of the people you'll send the letter to. With addresses and phone numbers if possible. It shows that you mean business and you've done some research. 

 

 

Edited September 14, 2023 by LadySkinsFan