Various sources have noted that my Oklahoma Senator, Rob Standridge, is proposing legislation to restrict insurance companies in how and how much they use credit score ratings in determining insurance rates.

My first impression is statism.

Why do we need to put the power of the state and armed enforcement agents behind such a simple thing as insurance rates calculation formulas and whether or not a person’s credit rating factors in?

Of course, one must always dig past first impressions.

I like to focus on what is most important first, and work down. Most important when discussing laws is individual liberty. Laws will restrict the individual liberties of the ratepayer and taxpayer on up. In this case, the most affected will be the individual insurance corporations. While many may think that is okay, restricting any liberty, even the liberties of corporations, be they big or small, restricts freedom, and that spreads. Restricting liberty anywhere gradually, and in succession, restricts it more everywhere.

We must look at each law and try to guess what liberties it will restrict, who it will affect, how much, and the ask ourselves if the trade offs are worthwhile. In most instances, we should be judging no.

I wrote about “there ought to be a law” versus “perhaps I can do something” here:

I, like most liberty-loving people, ask not what the government can do, but what I myself might be able to do that would improve the situation. Lawmakers are in the problematic situation of being able to make a law themselves. A lawmaker tends to forget that the government is hindrance, impediment, problem-making, not problem-solving. The lawmaker tends to feel that the job description is making laws, rather than representing constituents against government encroachment.

Regarding the bill Senator Standridge intends to introduce, I assume nothing is set in stone. I suppose he sees a problem and is simply trying to address it. I’m inclined to ONLY increase transparency. Perhaps the government can require service providers to list the factors that go into their premium calculations. I don’t think competition is served if the formula is required, but forcing the companies to admit the information they use, and where that information comes from seems fair. It seems the potential bads avoided are at least as bad as the limited coercion. Maybe.

For the insurance company, it is just a matter of the mathematics, models, and statistics. In the long run for all of us collectively, the situation is good and optimum, but along the way imbalances, and even abuses, seem likely.

It seems appropriate to require full disclosure of what caused an increase in premium. Frankly, what seems to account for most premium increases is brand loyalty. If you want good rates, you have to shop around and change companies every three to five years. Otherwise, you will eventually find your company is charging more than you are willing to pay. 😦

I found this article:

I find this quote flat wrong: “Price optimization is used when companies believe a consumer’s credit score would allow them to pay an extra charge per month even if the assessment is not warranted by tickets or accidents. As a result, the extra charge is tacked onto the annual premium.” That is a show-me statement if ever I heard one. Prove it, because for now, I just don’t believe it. It is not in the company’s best interest to overcharge. I cannot believe our primary insurance companies include overcharging as company policy.

It is irrational to ask what credit score has to do with insurance rates. If the actuaries find a consistent, repeatable correlation, it doesn’t matter to the bottom line why it works. The opposite is true too. If something obviously linked cannot be used by the actuaries to analyze the risk, it hurts the bottom line to try to use it anyway.

For the insurance company, it is only a matter of the mathematics of the models and the overall statistics. If the correlation holds up over various circumstances, the company should use that model with whatever goes into it. If the model uses my personal information, I should have the right of knowing. It should be publicly published that Insurance Company X uses client’s personal information from this and that source in determining rates charged.

Perhaps we can write a law that provides for that without overly infringing on liberty.

I will not support a prohibition on using credit scores for insurance calculations. Such a prohibition would be an unjustifiable coercion and intolerable limit on freedom. Unintended adverse consequences are likely. An obvious possibility of banning credit score use is having an otherwise good insurance company just dropping policies and abandoning the state, reducing competition and increasing the burden on the remaining base.

So, from my Senator, I ask consideration of liberty over regulation, and of transparency over more drastic compulsion.