Is Credit Scoring Valid?

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To The Editor:

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I read Michael Ha's June 30 article on credit scoring with greatinterest (see “NAIC Credit Scoring Debate Heats Up,” page 6). Ihave listened to the insurance companies go on and on about howcredit scoring is so accurate in predicting insurance claimactivity. I personally find it difficult to believe the companies'thinking on this subject.

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One big reason is each company uses its own criteria to developthis number. I have on many occasions found a great difference foran insured between two different companies. If this number is soaccurate, why the difference between companies? Is the insured morelikely to have a claim with the company which assesses him with alower credit score?

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I can believe that the higher the credit score, the lower theloss ratio will be, but is it really accurate in actual losses? Iknow for the most part, credit scoring has nothing to do with sex,race, income, etc., but I believe it may be for a differentreason.

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I believe that for the most part you will find individuals witha higher credit score are also those who are more affluent. This,in general, will mean higher-value homes, more expensive vehiclesand more toys, developing more premium and, in general, higherdeductibles.

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In general, they will have a better loss ratio for that class,but I believe the real question is: What is the number of losses tothe number of policies in each of the same categories? If thesefigures substantiate the loss ratio, then I am wrong, but I don'tbelieve they will.

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Every time I have been at a company meeting, I have asked thecompany to show that comparison, but I am told they cannot producethese figures. If the number of polices to the number of claimsdoes not verify the credit scoring currently used, then itdefinitely is not fair to the average consumer.

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Dale Bock

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D.W. Bock Insurance Associates

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Brookfield, Wis.


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, July 28, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.


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