Penalizing the responsible

The Federal Reserve has penalized responsible savers by slashing the rates that banks pay depositors to essentially zero. Spare me the bu!!$h!t about their monetary pumping being great for the economy. I’m p!$$ed off because they are cheating small savers who do not want to speculate – YES, SPECULATE! – in the stock market.

I have just received my 2022 homeowner’s insurance bill. The cover letter (from Traveler’s Insurance) begins with this statement: "The Washington State Office of the Insurance Commissioner has suspended the use of credit history to calculate Home, Rental or Personal Automobile policy premiums…

In accordance with this new rule, Travelers has modified its home, landlord and rental products and removed the impact of credit history in determining your policy premium. As a result, you may see changes to your policy premium."

My credit score is 836. These are the changes in premium.


Year    Premium     Change
2020    $866      
2021    $943        +8.9%
2022   $1127       +19.5%

Of course, the insurance companies will not lose money just because the state wants to change the system. No, they will lower the premiums of the irresponsible and raise the premiums of the responsible to compensate for the expected losses.

Grrrrrrr!!!

Wendy

20 Likes

Most bankruptcies are for medical reasons that kill a person’s credit. That is not a lack of responsible planning. I am including those who have problems with an addiction.

Much of what happens with the credit bureaus costs PoC who all their lives are redlined. In a way PoC have been picking up the tab for the rest of us for centuries.

Which complaints should we listen to?

8 Likes

"The Washington State Office of the Insurance Commissioner has suspended the use of credit history to calculate Home, Rental or Personal Automobile policy premiums…

This is as it should be.

There is no common cause/factor that ties credit scores to insurance premiums. It was a made-up pretext to jack up premiums for people with lower credit scores. FICO itself could never prove a common cause.

17 Likes

<There is no common cause/factor that ties credit scores to insurance premiums. It was a made-up pretext to jack up premiums for people with lower credit scores. >

Please post a link to FACTUAL support of that statement. (Not partisan political assertions.)

Just as vehicle insurance is higher for people with worse driving statistics, I could equally make an assertion that insurance companies charged higher premiums for people with lower credit scores because their statistics showed that those people had worse (less-profitable) records in terms of overall claims.

Wendy

3 Likes

WendyBG writes,

In accordance with this new rule, Travelers has modified its home, landlord and rental products and removed the impact of credit history in determining your policy premium. As a result, you may see changes to your policy premium."

My credit score is 836. These are the changes in premium.

Year Premium Change
2020 $866
2021 $943 +8.9%
2022 $1127 +19.5%

Of course, the insurance companies will not lose money just because the state wants to change the system. No, they will lower the premiums of the irresponsible and raise the premiums of the responsible to compensate for the expected losses.

I wonder how much of your insurance premium increase is based on climate change factors? I see Washington State homes sliding down the sides of hills almost every evening on the news.

https://www.kiro7.com/news/local/home-slides-off-foundation-…

intercst

WendyBG asks,

<There is no common cause/factor that ties credit scores to insurance premiums. It was a made-up pretext to jack up premiums for people with lower credit scores. >

Please post a link to FACTUAL support of that statement. (Not partisan political assertions.)

Here’s a link to the nonpartisan National Association of State Insurance Commissioners discussion of the issue.

https://content.naic.org/cipr_topics/topic_creditbased_insur…

As others have noted, a bad credit score is more often than not the result of medical debt after the victim has crossed paths with an unprincipled doctor or hospital administrator. I don’t see why that would affect home insurance. Claims history is likely a more important factor.

intercst

14 Likes

There is no common cause/factor that ties credit scores to insurance premiums.

Not a cause but rather a correlation. People with lower insurance scores statistically end up filling more claims. Note that insurance scores are not the same as credit scores.

'Emphasis is placed on those items associated with credit management patterns proven to correlate most closely with insurance risk, such as outstanding debt, length of credit history, late payments, collections and bankruptcies, and new applications for credit. Information such as income, ethnic group, age, gender, disability, religion, address, marital status and nationality are not considered when calculating an insurance score…

‘For example, an actuarial study published in 1996 by Tillinghast, an actuarial consultant firm, showed a “highly statistically significant” correlation between insurance scores and loss ratio—the cost of claims filed relative to the premium dollars collected. In other words, people who have low insurance scores, as a group, account for a high proportion of the dollars paid out in claims. A subsequent study published in 2003 in the Casualty Actuarial Society Forum came to similar conclusions: “From a statistical and actuarial point of view, it seems to us that the matter is settled: credit does bear a real relationship to insurance losses.”
Insurance regulators have also found similar results…’
https://www.iii.org/article/background-on-credit-scoring

So, how a person handles his financial affairs correlates to the number of claims. Feel free to speculate why that might be. More responsible people tend to have better scores (and also drive better) and perhaps take better care of their homes, having trees trimmed that might fall on their house in a storm, etc.

DB2

5 Likes

Not a cause but rather a correlation. People with lower insurance scores statistically end up filling more claims. Note that insurance scores are not the same as credit scores.

DB2,

I figured that out 25 years ago when talking to an older claims adjuster. He was pissed off the local Puerto Rican community that kept calling in with SOME fraudulent claims and often getting payouts.

The reason for those claims is obvious. If you overcharge people they want their money back. Then you jack up the premiums for the neighborhood or zip code and the claims rise again.

People are not fools. People know when they are overcharged. They will want more of the production’s benefits.

If zip codes etc are not used directly for the policies there is another avenue. There are a huge number of corporate entities in the insurance world that are sub-corporations of the main corporation. Any of the subsidiaries can be solely for underwriting the area in question and therefor redlining laws are not broken. Areas outside of the troubled region can get lower rates through a different subsidiary.

1 Like

Feel free to speculate why that might be. More responsible people tend to have better scores (and also drive better) and perhaps take better care of their homes, having trees trimmed that might fall on their house in a storm, etc.

Well, I’d speculate that people with worse credit scores don’t buy new houses, they buy older houses. Probably not in the best parts of town. Obviously there are lots and lots of exceptions, as when developers put up low cost housing plots using lesser grade materials, but the concept is the same.

If you have money you probably live in a nicer section of town. There is less crime. There is less vandalism. You probably don’t have a bar a half block away, or public housing one street over, or lead paint in the walls, or inadequate wiring to handle a space heater when your old furnace doesn’t give you enough heat on a really cold day.

Your street probably doesn’t have as many potholes, and you spend more on car maintenance because you had to get a car from Goofy’s Seriously Used Car Emporium. Perhaps your streetlight has been out for four months and the city hasn’t gotten around to replacing it yet.

You don’t have a lot of money because you were raised by a single mom in a house that was redlined by the banks, so she never accrued any assets to speak of, and you didn’t go to college because you couldn’t afford it, and …

Well, you get the idea. I’m sure there is a correlation, I don’t argue that. I also get the argument that everyone should pay according to their risk, I just don’t think it’s that clear cut. For instance, using the “drivers” model, if you are an unsafe driver we nick you with higher premiums. But if you are a really unsafe driver we still give you insurance, even at a loss, and you are put into an assigned risk pool which is unprofitable for insurance companies and even safe drivers pay higher rates because of it but we make them take a piece of it because we recognize that people have to be able to drive in a modern society. (If you are a criminally bad driver we put you in jail, of course, so that’s that.)

A large part of middle class wealth is tied up one way or another with real estate; for a century we gave away land to some people but not others. Then those others were herded into areas by discrimination (overt and otherwise), those properties were redlined making it financially impossible and impractical to upgrade them. We created these areas, inadvertently perhaps, but now we institute financial penalties for people we have trapped in them making it even harder to climb out and acquire the wealth (and characteristics of wealth) we so take for granted.

Yes, I am aware that no matter how much you do some people will live that way, that no financial penalty or advantage will change things for them, and I am at a loss to solve that problem. That said, I don’t think it’s a lot that homeowners be charged reasonably for their own particular risks, and not be dumped into a class with others which may or may not have anything to do with them.

As one poster here so often says “Correlation is not causation.” I would just add that using correlation can perpetuate the root causes that brought the correlation to be, ignoring the actual reasons for causation.

21 Likes

My credit score is 836. These are the changes in premium.

Year Premium Change
2020 $866
2021 $943 +8.9%
2022 $1127 +19.5%

How much is due to in increase in property valuation? How much is due to changes in FEMA insurance, i.e., paying a “real” rate instead of a “capped” rate. While you might not have FEMA insurance specifically, any change in government policy will have a trickle down, trickle up, trickle sideways effect. Increase in natural disasters in your area the past 5 years? Increase in man made disasters, i.e., crime/property distruction. Might not all be from dropping FICO scores.

JLC, who will soon find out what his new beach condo insurance will be due to FEMA changes.

1 Like

<There is no common cause/factor that ties credit scores to insurance premiums. It was a made-up pretext to jack up premiums for people with lower credit scores. >

Please post a link to FACTUAL support of that statement. (Not partisan political assertions.)

You got that backwards. If the insurance companies assert a “cause and effect” relationship, then they have to prove what it is and how it works. Which is exactly what no one can do. Just because something “looks like” it is right does not make it right. Of course, unless one eliminates facts and logic in order to get to the “feels good” answer. Which is exactly what the insurance companies do.

Hidden fact: Insurance companies do NOT tell the public the people with the HIGHEST credit scores file MORE claims than many others. Why? Because this group has high repair costs on their expensive “stuff”, and they want to get things fixed/replaced when they become damaged. Sound familiar? It is the same argument used to assert lower income people file claims–to get their money’s worth from the insurance they spend a LOT of money to buy. The insurance companies ALSO do not release this info because it contradicts their premium-maximizing strategies, but it was in the original analysis 20+ years ago.

4 Likes

The perfect song for this:

https://www.youtube.com/watch?v=4EJSkJlh_fg

Given how many natural disasters we had last year, I am not surprised at the increase in your bill. I’m wondering how long insurance will be affordable for everyone.

IP

Haven’t you heard? Able-bodied adults are no longer responsible for solving their problems.
Took on too much student debt? It’s forgiven.
Can’t afford cost of living? Have $1000/month free in UBI.
Had a kid? Don’t get married or the staye won’t help you as generously.

But why blame the small fry? Did you gamble with billions of other people’s money? The government will bail you out so you can not only keep your five houses and six mistresses, but preach to the unwashed masses how you are doing God’s work.

A fish rots from the head.

11 Likes

Haven’t you heard? Able-bodied adults are no longer responsible for solving their problems.

I view it as something much more sinister…bribes for votes. Who is more likely to vote for you? Someone who can take care of themselves, or someone that you take care of, realizing that all those freebies could go away if you are not kept in office. Politicians not only don’t want to encourage us to be responsible and self-sufficient, their career depends on us not being so.

I am all for the leg up and training to give people the boost they need. I am against the systemic erosion of responsibility that leaves the majority needing to vote for their gov’t Nanny.

IP

10 Likes

Haven’t you heard? Able-bodied adults are no longer responsible for solving their problems.

As far as the working poor go and the lower middle class generally they work harder than any of us. If you feel defensive about that comment I will rephrase it those folks generally work harder than most Americas. Putting them down has been a way to use them as lazy. It is total bull.

We have a user society. That does not mean we have a capitalistic society so it has to be a user society.

In 2019 42.4% of all American workers were paid less than $15 per hour.

I have no idea why people here are kidding themselves. Unless y’all are making more than $400k per year and do not want tax hikes.

People who stay home with babies often find it a better option than paying for childcare. I guess keeping the US in a backwards state is an option, but I do not like that option one bit.

Meanwhile these programs all grow the US economy justly. The economics is well known and studied. That is good for the people earning over $400k per year.

6 Likes

I remember 1973-1975. I was fresh out of college, unemployed (except for substitute teaching one or two days a week), married to a guy who earned less than our rent. I was not eligible for unemployment because I had never had a full-time job for more than six months.

Then they started a program that paid some unemployment to everyone. That (and foraging) is how we afforded to eat for about six months.

When I finally found a job, it paid very, very little, but it made it possible to buy groceries.

I never saw the government as a nanny. And I wanted to stop taking that money as soon as possible. I wanted to pay back my student loan as soon as possible.

I expect people taking the current stimulus money fell pretty much the same way.

Anyhow, I don’t think some of you give people enough credit for ambition or responsibility. Most people want a life filled with accomplishment and self-reliance.

33 Likes

Anyhow, I don’t think some of you give people enough credit for ambition or responsibility. Most people want a life filled with accomplishment and self-reliance.

WilliB,

The same folks will ignore corporate socialism/welfare to line their own wallets.

Many of them now are in at least two socialist programs collecting SS and depending on Medicare. Does not matter if you paid in, it is still socialism guys.

It is just a matter of who is at the top of the line to make a living. Getting in line at the top is labeled regardless as talent. LOL Getting in line last is labeled as failed. In the breadlines of the 1930s America became breadline dependent. Trying to shake that has only found billionaires and millionaires dominating our breadlines. Adam Smith in the fifth book of The Wealth of Nations begins the process of uncovering the socialist nature of capitalism. Smith’s intentions were for a fair and equitable use of government in his fifth book. The invisible hand quote only appears once in all of his writings.

The user society needs to end. It was rooted in slavery, sharecropping and Jim Crow laws. As you fully know.

2 Likes

My wife’s first job after finishing her MA in 1974 was through the Comprehensive and Employment Training Act. She had it for about two years while I went back to school with an assistantship and a part time job and got my MA. That CETA job paid probably about $6,000 / year. That CETA job allowed her to start building a work record as a professional. The taxes we have paid over the years have covered the expense of that first job out of school many times over. I am sure CETA was one of the best investments in the future made during that time because I am sure my wife’s experience was not unique.

3 Likes

Anyhow, I don’t think some of you give people enough credit for ambition or responsibility. Most people want a life filled with accomplishment and self-reliance.

As I said in my post, WilliB, I am all for the hands up that get people up and out of their rut, programs that fix the root cause of the problem rather than propagate it. The proverbial teaching people to fish rather than feeding them eternally. Give them the pole, hook and bait, the training, and enough food to get them started, then let them be successful on their own. While there are some people who need to be cared for eternally, (and my brother was one of those,) the gross majority should be able to go over the hurdle that is keeping them from going forward.

We all have anecdotes from both sides of the argument, many of which I could provide for myself trying to survive in the '80’s, or more recently my son who rather than take the gov’t handout for recent college grads took a job that he could have gotten out of high school or less education, while sending out resume after resume every week. (Had a great phone interview and waiting to hear about that professional job, more than a year after graduating.) I am proud of him for taking the hard labor job that no one wants and fighting his way through the job issues created by this pandemic, rather than just take the gov’t money and sit back and wait like many of his fellow grads did. Recent grads do not have it easy right now, but no one said life was easy.

It is the motivation of the politicians who denigrate people’s ability to save and pull themselves up, while creating a tether of handouts to keep them loyally voting for those politician that bothers me. I feel the same way about many medications that treat symptoms rather than fixing the root cause of those symptoms, but line the pockets of the pharmaceutical companies and make doctors’ jobs easier because people are more willing to take a pill than be educated. And when those pills create more symptoms, there are meds to treat the symptoms of the meds. And so on.

It is human nature to want an easier life. Unfortunately it is also political nature and strategy to not let a crisis be wasted. Politics for the most part is about what is best for politicians, not what is best for those they serve. IMO that is a great part of the root cause of our problems, and sadly one I don’t know how to fix, if we would even be allowed to do so by those in power.

FWIW,

IP

3 Likes