Is Credit Scoring Valid?

To The Editor:

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

One big reason is each company uses its own criteria to develop this number. I have on many occasions found a great difference for an insured between two different companies. If this number is so accurate, why the difference between companies? Is the insured more likely to have a claim with the company which assesses him with a lower credit score?

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

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

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 to the number of policies in each of the same categories? If these figures substantiate the loss ratio, then I am wrong, but I don't believe they will.

Every time I have been at a company meeting, I have asked the company to show that comparison, but I am told they cannot produce these figures. If the number of polices to the number of claims does not verify the credit scoring currently used, then it definitely is not fair to the average consumer.

Dale Bock

D.W. Bock Insurance Associates

Brookfield, Wis.

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

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