Insurance Credi Scoring: An Ethical Issue

The issue at hand is the use of a consumer’s credit score as an underwriting tool for automobile insurance rates. What is a credit score or FICO score? A FICO score is a credit score developed by Fair Patriarch & Co. Credit evaluation is a know-how of deciding the odds that credit users wish pay their bills. Fair, Patriarch began its activity with credit evaluation in the late Decade and, since then, evaluation has become wide accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrower’s credit history into a single number. Fair, Patriarch & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has subordinate this to be acceptable.

Isn’t it engrossing that the score most important in our business lives, our user credit score makes not even as contain full disclosure? As explicit above the Federal Trade Commission has subordinate that it is ok for Fair Patriarch & Co not to disclose the algorithms used in this process, but what simply about user rights. Patch it is important to understand what a FICO score is, it is not the main issue of this paper, insurance rates are. So wherever is the connection? All the public knows is that Fair Patriarch tells us there is a high correlation between folk with bad credit and high risk drivers. This notion is insane and from what I can see from this black box approach, there is no real deed between the two. This type of reasoning is similar to convicting a person of thing before they have even as committed a crime. For instance, let’s say I do a study and that study shows there is a high correlation between criminals and folk with bad credit. Is this to say that simply because you have bad credit you are much likely to commit a crime and therefore you should be profiled or maybe bolted up because you are a risk to society?

This system is discriminating against minorities, disabled and in my case college students among others. Fair Patriarch & Co claims that they cannot show the sophisticated algorithms they use to calculate these correlations and scores because they fear that they would-be be giving up valuable proprietary information that was really costly to develop and maintain. What simply about the cost to consumer’s who may be paying higher rates or in worse cases even as denied insurance based on these practices.

The Equal Credit Possibility Act forbids creditors from considering race, sex, marital status status, national origin, and religion, but if we don’t even as cognize how these companies are conniving these scores, how in the earth could we possibly cognize whether or not they are discriminating. This smoke and mirror approach is what many a government agencies do to subtly discriminate and extort money from the American.

What simply about extortion? As I reflect on this topic extortion comes to mind. Webster defines extortion as to “obtain by force or compulsion.” By mistreatment such groundless plan of action consumers are forced into paying the higher rates. 1st of all, 90% of all insurance companies use this procedure; second in the interest of society legislation requires all Americans with cars to have car insurance. Living in a country wherever it is virtually impossible to live without a car doesn’t this present several force to pay the rates? Also, lets say you cannot afford to buy a car with cash, in which case you could receive liability insurance alone and save quite a lot of money; but instead you take out a loan, the bank wish require you to receive full coverage automobile insurance to cover them until you pay off the loan. Patch this case may not represent an extreme case of extortion it makes give reason to cerebrate the connection.

Insurance companies tout themselves as representing peace of mind, protection and security, but at what cost. Over the past 10 years, I have spent roughly 20,000 dollars in car insurance, what have I claimed? Easily less than half and I totaled a car. Is insurance simply a form of legalized gambling protected by government? The McCarran-Ferguson Act of 1944 exempts the insurance industry from fair laws, so here we are once much without a choice; collusion is the rule not competition. Wherever are the ethics of lawmakers? Many a states are screaming simply about this contentious issue and several states such as Ca have had several success, but with protection from top government what can consumers do?

I have in person written the Governor of Pennsylvania simply about the subject, one of my main questions was;

“I am a concerned citizen. Recently I detected my car insurance rates increasing at a substantial rate. I investigated the situation only to find out that my credit rank was fashioning the difference, not my drive record.”

The response I received from the Department of Insurance follows:

This letter is in reponse to your complaint filed with the Pennsylvania Insurance Dpartment through Governor Edward G. Rendell's correspondence office regarding the use of credit as an underwriting tool for automobile insurance in Pennsylvania.

I have see through your concerns and it appears that you are questioning the underwriting of automobile insurance. Specifically, the use of credit in deciding eligibility. Many several factors go into the underwriting of an insurance policy, such as type of vehicle, drivers, location, etc. and most recently credit history. Pennsylvania law makes not command an insurance institution fromusing credit as an underwriting tool so long as it is done inside the 1st 60 days of writing a policy. Under the law, an insurance institution is granted a 60 day window from the beginning of a policy to determine whether or not the policy fits into the company's guidelines.

In your letter, you explicit credit evaluation in part of the rank structure and surmisable must be authorised by the Insurance Department. Actually, credit evaluation is part of a company's underwriting guidelines and the Dapartment only regulates underwriting guideline to the extent they are not discriminatory.

Also, Federal law under the Fair Credit News Act allows credit information to be used for underwriting business and insurance transactions.

Sincerely yours,

Debra L. Roadcap

Consumer Service Investigator

The response I received is hardly what I would-be call an answer, of course Federal Law preempts state law and the Fair Credit News Act allows for use of such information, but the real question is why? An answer to this question has still not been received. I believe this is a extremely unethical practice in which insurance companies are being given free rule to take advantage of low-income families, single mothers, disabled, minorities and others. If the government wants to do the right thing they should judge consumers on what they have done individually, not what scientist’s hypothesis they power do based on the history of others.

My name is Richard D. Schrader, I advocate user education on many a topics and help consult American consumers with excessive credit card debt. You can visit my website at www.debtjustice.net

webmaster@debtjustice.net