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When I posted a blog entry on Sept. 19 about NU Associate EditorMark Ruquet's column in the Sept. 18 print edition of NationalUnderwriter, citing on a personal level the drawbacks of allowinginsurers to use credit scoring to price coverage, it created quitea stir, drawing a wide range of comments. After carefullyconsidering how readers responded, he's weighing in with somecounterpoints of his own. Read on.

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Mark Ruquet, NU Associate Editor:

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It is great to see that people read my column either here on this blog or in NU, and are eager torespond. Unfortunately, the comments filed here seem to underscorewhat I wrote.

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To the defenders of credit scoring–you missed my point. As ananalysis of risk, it may well be an excellent tool in the actuarialprocess to help measure risk. It knows no race, color or creed andonly indicates how responsible an individual is. Theoretically, aperson who is responsible with their wallet should be responsiblebehind the wheel.

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Yes, credit scores are popularly used by the business community,and its popularity is growing. But, popularity does not alwaysequate to wisdom, especially for the business community.

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Anybody remember junk bonds? A popular investment tool thatended up putting a few people in prison and untold losses amonginvestors.

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For those opposed to the use of credit scores–insurers dont usethem as the sole metric for determining risk. There are a number offactors that go into the mix. It is actuarial science. Anyone inthis business who relies on one piece of information to determinerisk is a fool, and will one day join the cavalcade ofinsolvency.

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However, all of this is irrelevant to my main complaint.

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The problem with credit scores is they are not reliable. Oneindividual I spoke to said there is a 10 percent error rate incredit reports. Another study said the error rate is 79 percent, 25percent of which are serious enough to result in the denial ofcredit.

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Are the numbers right? We can spend all day debating that pointamong those with narrow political agendas. But there is no denyingerrors are made. There are credible questions about the reliabilityof the information that goes into creating the scores. Whether itis 10 percent or 79 percent, you are looking at millions of people.Those are real numbers.

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Those supporting credit scores need to take off their blindersand insist of the reporting agencies that the information theyprovide be accurate. Credit scoring may be useful, and harmlessfrom an actuarial perspective, but if the numbers are bad going in,might not the results be equally poor coming out?

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