The insurance business is populated with some very bright and articulate people who have an amazing ability to contest any point with reasonable analysis and shrewd debate. So it is a bit befuddling to see the industry so tone deaf on one particular challenge. The issue was a recent article in Consumer Reports that took the industry to task for its use of consumer credit scoring when underwriting auto policies.
In its piece, the magazine said it obtained the underwriting formulas of a number of insurers and hired actuaries to run the numbers using hypothetical credit scores in best- and worst-case scenarios. The results, from a consumer's perspective, were rather alarming. Using the actuarial formulas of three insurers for calculating a policyholder's auto premium, the test revealed dramatic differences in pricing.
Apparently this is not the first time the magazine has attempted to examine the use of credit scoring in insurance. The magazine's editors said that for years they attempted to obtain information directly from insurers to make such a determination, but failed. Insurers argued that such information remains proprietary and that secrecy maintains their competitive edge.
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