An Ethical Concern with Insurance Credit Scoring

 An Ethical Concern with Insurance Credit Scoring

In this case, we have an issue with auto insurance companies using a customer's credit score as an underwriting metric. An FICO score or credit score—what are they? Credit scores like the one created by Fair Isaac & Co. are known as FICO scores. The purpose of credit scoring is to estimate the reliability of a customer's payment history. In the late 1950s, Fair, Isaac started experimenting with credit scoring, and since then, lenders have mostly come to rely on it. Credit scores are an effort to reduce the length of a borrower's credit report to a single numerical value. The credit reporting agencies and Fair, Isaac & Co. remain tight-lipped about the scoring methodology. This is considered acceptable by the Federal Trade Commission.
It's fascinating that our consumer credit score—the most crucial number in our financial lives—does not even include full information. The FTC has decided that Fair Isaac & Co. can avoid disclosing the algorithms employed in this process, as mentioned before; yet, this decision raises questions about consumer rights. While familiarity with FICO scores is helpful, that is not the focus of this article; rather, insurance premiums are. In that case, what's the link? The only information that the general public has is that Fair Isaac has informed them that high-risk drivers tend to have poor credit. This idea is completely out of control, and the results of this black box analysis do not seem to point to any actual relationship between the variables. This line of thinking is like to finding someone guilty of a crime before they have even broken the law. As an example, suppose my research reveals a strong association between criminals and those with poor credit. Does this mean that people with poor credit are more prone to commit crimes, and that we should target them specifically or even put them in prison because of the danger they pose to society?
College students like me, as well as minorities and the disabled, are targets of this system's discrimination. Fair Isaac & Co. asserts that they are unable to provide the complex algorithms used to determine these correlations and ratings due to the high expense of developing and maintaining this private information. Think about the price that consumers will pay if these tactics lead to higher rates or, worse, insurance denials.
It is impossible to determine whether these corporations are discriminating if we do not know how they calculate these ratings, even though the Equal Credit Opportunity Act prohibits creditors from taking into account racial, sexual, marital, national origin, or religious factors. Many government entities use this deceptive strategy to steal money from Americans and discreetly discriminate against them.
Also, what about blackmail? My thoughts turn to extortion when I consider this subject. The verb "extort" is defined as "to obtain by force or compulsion" according to Webster. Customers are coerced into paying the increased rates through the use of such illogical approaches. First, this method is used by 90% of insurance companies. Secondly, all Americans who own cars are legally required to obtain auto insurance for societal reasons. There must be some incentive to pay the rates if you live in a nation where having a car is practically essential. Additionally, if you want to buy a car but don't have the cash on hand, you can save a ton of money by just getting liability insurance. However, if you get a loan instead, the bank will insist that you get full coverage auto insurance to pay them back. Even if this isn't a very severe instance of extortion, it does raise questions about the link.
The insurance industry brags about providing security, protection, and tranquility, but at what price? My auto insurance premiums for the last decade have been close to twenty grand. What have I covered with those premiums? I wrecked a car with probably less than half of that. Is insurance really a government-protected version of gambling? The insurance business is excluded from antitrust legislation according to the McCarran-Ferguson Act of 1944, thus once again, we are left with no alternative but to accept collusion as the norm rather than competition. Legislators, where are your morals? Even though certain states, including California, have made strides in addressing this contentious subject, consumers still face obstacles when faced with protection from the federal government.
"I am a concerned citizen" was one of the primary inquiries I made in my letter to Pennsylvania's governor over the matter. There has been a dramatic spike in the cost of my auto insurance premiums as of late. After looking into it, I realized that it had nothing to do with my driving record and everything to do with my credit score.
The following is the Department of Insurance's response:
Your complaint concerns the utilization of credit as an underwriting tool for Pennsylvania motor insurance was submitted to the Pennsylvania Insurance Department through Governor Edward G. Rendell's correspondence office. This letter is in response to that complaint.
From what I can tell, you seem to be raising doubts about the underwriting of auto insurance in your worries. More especially, the process of assessing eligibility based on credit.Type of vehicle, drivers, location, etc., and, most recently, credit history are among the several variables considered when insuring an insurance policy. If done within the first sixty days of policywriting, insurance companies in Pennsylvania are not breaking any laws by using credit as an underwriting tool. There is a legal window of opportunity for an insurance provider to assess a policy's suitability within 60 days of enrollment.
You mentioned in your letter that the Insurance Department must likely approve the rating system, which includes credit scoring. Credit scores are really a component of underwriting standards, and the Department of Labor merely supervises these standards to ensure they do not discriminate.
Underwriting financial and insurance transactions also makes use of credit information, according to federal legislation under the Fair Credit Reporting Act.
Best regards,
Mrs. Debra L. Roadcap, Investigator for Consumer Services
The reply I got was far from satisfactory; I get that federal law takes precedence over state law and that the Fair Credit Reporting Act permits the utilization of such data, but why? We still haven't heard back about this question. In my view, this is a very immoral practice since it allows insurance companies to exploit vulnerable populations such as low-income families, single mothers, people with disabilities, and minorities. If the government is serious about doing the right thing, it should evaluate customers according to their own actions, not according to scientific theories that could be based on the past.
Oh my goodness!

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