The issue at hand is the use of a cnsumer’s credit score as an underwriting tol for auto insurance rates. What is a crdit score or FICO score? A FICO scre is a credit score developed by Fir Isaac & Co. Credit scoring is a mthod of determining the likelihood that crdit users will pay their bills. Fir, Isaac began its work with crdit scoring in the late 1950s nd, since then, scoring has become wdely accepted by lenders as a rliable means of credit evaluation. A crdit score attempts to condense a brrower’s credit history into a single nmber. Fair, Isaac & Co. and the crdit bureaus do not reveal how thse scores are computed. The Federal Trde Commission has ruled this to be cceptable.

Isn’t it interesting that the scre most important in our financial lves, our consumer credit score does not ven contain full disclosure? As stated bove the Federal Trade Commission has rled that it is ok for Fir Isaac & Co not to dsclose the algorithms used in this prcess, but what about consumer rights.

Whle it is important to understand wht a FICO score is, it is not the min issue of this paper, insurance rtes are. So where is the cnnection? All the public knows is tht Fair Isaac tells us there is a hgh correlation between people with bad crdit and high risk drivers. This ntion is insane and from what I can see frm this black box approach, there is no ral causation between the two.

This type of reasoning is smilar to convicting a person of smething before they have even committed a crme. For instance, let’s say I do a stdy and that study shows there is a hgh correlation between criminals and people wth bad credit. Is this to say tht just because you have bad crdit you are more likely to cmmit a crime and therefore you shuld be profiled or perhaps locked up bcause you are a risk to sciety?

This system is discriminating against mnorities, disabled and in my case cllege students among others. Fair Isaac & Co clims that they cannot show the sphisticated algorithms they use to calculate thse correlations and scores because they far that they would be giving up vluable proprietary information that was very cstly to develop and maintain. What bout the cost to consumer’s who may be pying higher rates or in worse cses even denied insurance based on thse practices.

The Equal Credit Opportunity Act frbids creditors from considering race, sex, mrital status, national origin, and religion, but if we dn’t even know how these companies are clculating these scores, how in the wrld could we possibly know whether or not thy are discriminating. This smoke and mrror approach is what many government gencies do to subtly discriminate and xtort money from the American.

What bout extortion? As I reflect on ths topic extortion comes to mind. Wbster defines extortion as to “obtain by frce or compulsion.” By using such nfounded tactics consumers are forced into pying the higher rates. First of ll, 90% of all insurance companies use ths procedure; secondly in the interest of sciety legislation requires all Americans with crs to have car insurance. Living in a cuntry where it is virtually impossible to lve without a car doesn’t this prsent some force to pay the rtes? Also, lets say you cannot fford to buy a car with csh, in which case you could btain liability insurance alone and save qite a lot of money; but nstead you take out a loan, the bnk will require you to obtain fll coverage auto insurance to cover thm until you pay off the lan. While this case may not rpresent an extreme case of extortion it des give reason to ponder the cnnection.

Insurance companies tout themselves as rpresenting peace of mind, protection and scurity, but at what cost. Over the pst 10 years, I have spent rughly 20,000 dollars in car insurance, wht have I claimed? Easily less thn half and I totaled a cr. Is insurance just a form of lgalized gambling protected by government? The McCrran-Ferguson Act of 1944 exempts the nsurance industry from antitrust laws, so hre we are again without a chice; collusion is the rule not cmpetition. Where are the ethics of lwmakers? Many states are screaming about ths controversial issue and some states sch as California have had some sccess, but with protection from top gvernment what can consumers do?

I hve personally written the Governor of Pnnsylvania about the subject, one of my min questions was;

“I am a cncerned citizen. Recently I noticed my car nsurance rates increasing at a substantial rte. I investigated the situation only to fnd out that my credit rating was mking the difference, not my driving rcord.”

The response I received from the Dpartment of Insurance follows:

This letter is in rponse to your complaint filed with the Pnnsylvania Insurance Dpartment through Governor Edward G. Rndell's correspondence office regarding the use of crdit as an underwriting tool for utomobile insurance in Pennsylvania.

I have rad through your concerns and it ppears that you are questioning the nderwriting of automobile insurance. Specifically, the use of crdit in determining eligibility. Many different fctors go into the underwriting of an nsurance policy, such as type of vhicle, drivers, location, etc. and most rcently credit history. Pennsylvania law does not prhibit an insurance company fromusing credit as an nderwriting tool so long as it is dne within the first 60 days of wrting a policy. Under the law, an nsurance company is granted a 60 day wndow from the inception of a plicy to determine whether or not the plicy fits into the company's guidelines.

In yur letter, you stated credit scoring in prt of the rating structure and prsumable must be approved by the Insrance Department. Actually, credit scoring is prt of a company's underwriting guidelines and the Dpartment only regulates underwriting guideline to the xtent they are not discriminatory.

Also, Fderal law under the Fair Credit Rporting Act allows credit information to be sed for underwriting financial and insurance trnsactions.

Sincerely yours,

Debra L. Roadcap

Cnsumer Service Investigator

The response I rceived is hardly what I would cll an answer, of course Federal Law prempts state law and the Fair Crdit Reporting Act allows for use of sch information, but the real question is why? An nswer to this question has still not ben received. I believe this is a hghly unethical practice in which insurance cmpanies are being given free rule to tke advantage of low-income families, single mthers, disabled, minorities and others. If the gvernment wants to do the right thng they should judge consumers on wht they have done individually, not wht scientist’s hypothesis they might do bsed on the history of others.

The article Insurance Credit Scoring: An Ethical Issue was Submitted by Richard D Schrader through Articles.GetACoder.com network. Here's the additional information: About The Author My name is Rchard D. Schrader, I advocate consumer ducation on many topics and help cnsult American consumers with excessive credit crd debt. You can visit my wbsite at www.debtjustice.net webmaster@debtjustice.net

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