Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
What are you talking about? Health insurance companies have been discriminating against people with pre-existing conditions for decades. Or families with a chronically ill child. Until the Affordable Care Act comes into full force, they will continue to do so.
You are patently unclear on the purpose of insurance.
It's purpose is to pool similar risks so that the small chance of catastrophe is spread across all of the insureds.
If say, 10 years ago an insurance company started allowing in people with pre-exisiting conditions without charging them MASSIVE actuarially sound premiums, then they'd have to raise their rates on everyone. The healthy people would leave for a lower cost insurer and the first insurer would eventually be put out of business.
Now with the affordable care act, all of the insurers will have to spread the burden but prior to that mandate, it would have been SUICIDE for any insurer to do what you suggested.
What I'd like to know is why can't other industries use these factors to their benefit, only insurance companies.
It does not matter about statistics !!!
FOR EXAMPLE: A statistical analysis could prove that blacks and hispanics have a greater loan default rate than other ethnic groups but banks cannot discriminate on that or other factors such as sex, age, occupation. You can't turn a loan applicant down because of old age, you can't give a better loan rate to females or males no matter who statistically has the greater payback ratio. Why are insurance companies allowed to discriminate on factors that no other industry can ???
First off, your underlined statement above is wrong, unless you get some hack that doesn't know what they are doing with statistics. This is why banks use credit score and not skin pigmentation.
Any smart insurer or bank etc. will want to use variables with a known relationship to the premium.
For banks, that's generally credit score, assets, down payment and the purpose of the loan etc.
(The problem with your sentence I underlined is that you are confusing correlation)
For insurers, it's vehicle type, location, sex, age etc. which are statistically proven variables that correlate to losses. Race is NOT one of them.
Let's look at life insurance, you can't figure out why I'd want to charge more to a 55year old man for 20 year term life than I would to a 30 year old woman? You can't understand why they won't sell life insurance to a guy with an inoperable brain tumor?
The specific wording in all insurance literature is that a rate may not be UNFAIRLY DISCRIMINATORY. The purpose of insurance is for people to pool their risks and contribute to the pool in proportion to their own riskiness.
In the EARLY days of insurance they would have mono-rate hospital plans where you would all pitch in say....a dollar a month but it FAILED because the younger healthier people were getting screwed. That led to the modern practice of charging people based upon thier risk. If you don't do that, your company will go bankrupt.
Agreed and you explained it better than I would. Take care.
Blazer was mostly correct.
There are however subsidies forced on insurers by various states due to political agendas etc.
For example, Florida has suppressed coastal home insurance rates for decades at the expense of other homeowners in the state and currently at the expense of it's taxpayer base.
Most people have no idea that each state has complete control over it's insurance rates and can operate like an absolute dictator if they choose despite any factual refutation.
They don't practice any race discrimination because that would not only be outlawed by the government, (if it isn't already), but it would be very stupid. Race has nothing to do with risk, and that's how insurance is priced, based on their calculated estamate of the amount of risk that they are assuming based on all kinds of factors. I worked for Geico selling car insurance over the phone, people were rated based on age, credit rating, location, driving record, type of vehicle, education, job, and others. Race has nothing to do with the risk factors. If a person is a bad risk, the insurance company will find out based on various factors that have absolutely nothing to do with race.
Bottom line; insurers do what ever they can to increase their profits. If using horoscopes would net them more profits, they would include it in their risk assessments. Despite what a few posters rattled off here, correlation does not equal causation. A bad 21 year old driver is a bad driver not because he is 21, but because he drives bad. Still waiting for the explanation how a bad credit score impacts driving skills, late payment or too many inquiries and all of a sudden a worse driver?
Insurance should be based upon the individual's driving habit, not external factors that have nothing to do with driving.
Many posters here are assured of their knowledge, yet cannot even comprehend the basics of statistical analysis, which leaves a serious doubt in my mind of their credibility.
Example from above "I worked for Geico selling car insurance over the phone, people were rated based on age, credit rating, location, driving record, type of vehicle, education, job, and others. Race has nothing to do with the risk factors."
Race has nothing to do with it because the insurer did not include it, or are forbidden to by law. You could use horoscopes, hair color, or anything else as a factor and derive a correlation from it, but that does not mean causation. Example, crime goes up in the summer, so do sales of ice cream, so that means ice cream causes crime, so we should restrict ice cream sales. This is the same scenario insurers do. Education does not cause bad driving, my driving habits did not change as I advanced from my AS, to my BS, to my MBA. A credit score does not magically impact someone's driving habit.
There are statistics that can show one race being a higher risk than another, you can make one yourself. Out of four groups, white, black, Asian, and Hispanic; they will fall into a rank order just out of probability, they will not have the same statistical driving record. Based off of this, an insurer can assign a higher rank. So say Asians have a 10% higher incidence of a car wreck, so an insurer can then assign a rate increase. This is no different then stating people under the age of 25 have a 10% higher chance of being in a car wreck.
I can use horoscopes, hair color, eye color, national origin, Apple or PC, or anything other factor and find a correlation, like Apple users have a worse driving record than PC users; but this does not mean using an Apple causes bad driving.
Bottom line; insurers do what ever they can to increase their profits. If using horoscopes would net them more profits, they would include it in their risk assessments. Despite what a few posters rattled off here, correlation does not equal causation. A bad 21 year old driver is a bad driver not because he is 21, but because he drives bad. Still waiting for the explanation how a bad credit score impacts driving skills, late payment or too many inquiries and all of a sudden a worse driver?
Insurance should be based upon the individual's driving habit, not external factors that have nothing to do with driving.
Many posters here are assured of their knowledge, yet cannot even comprehend the basics of statistical analysis, which leaves a serious doubt in my mind of their credibility.
Example from above "I worked for Geico selling car insurance over the phone, people were rated based on age, credit rating, location, driving record, type of vehicle, education, job, and others. Race has nothing to do with the risk factors."
Race has nothing to do with it because the insurer did not include it, or are forbidden to by law. You could use horoscopes, hair color, or anything else as a factor and derive a correlation from it, but that does not mean causation. Example, crime goes up in the summer, so do sales of ice cream, so that means ice cream causes crime, so we should restrict ice cream sales. This is the same scenario insurers do. Education does not cause bad driving, my driving habits did not change as I advanced from my AS, to my BS, to my MBA. A credit score does not magically impact someone's driving habit.
There are statistics that can show one race being a higher risk than another, you can make one yourself. Out of four groups, white, black, Asian, and Hispanic; they will fall into a rank order just out of probability, they will not have the same statistical driving record. Based off of this, an insurer can assign a higher rank. So say Asians have a 10% higher incidence of a car wreck, so an insurer can then assign a rate increase. This is no different then stating people under the age of 25 have a 10% higher chance of being in a car wreck.
I can use horoscopes, hair color, eye color, national origin, Apple or PC, or anything other factor and find a correlation, like Apple users have a worse driving record than PC users; but this does not mean using an Apple causes bad driving.
Good post.
Credit score has been controversial in auto insurance rating but it has a proven correlation. This is the product of multi-variate analysis using such methods as generalized linear models.
Easy. It's all about profit lines. Race doesn't matter unless you can pay for it. Then again, that's why they also try to do so much research trying to underpin race/genetics as a way to hike up premiums for certain conditions such as diabetes. They still discriminate. They just won't outright call it for what it is.
But, people like to slave to these cronies often will argue the opposite when blatant facts/statistics stare right at them.
Insurance should be based upon the individual's driving habit, not external factors that have nothing to do with driving.
Just to devil's advocate this, let's say theres a factor X highly correlated with accident risk - but having nothing to do with driving (credit scores being a real world example of this) - that the insurer either isn't allowed to or simply neglects to underwrite based on. Now let's say that consumer A knows that based on X they are a very low risk for an accident. Wouldn't that buyer then have an incentive to seek out an insurer who does underwrite based on that, and that insurer then have a competitive advantage? Further, if no-one does it, then doesn't consumer A have an incentive to exit the market by self-insuring (not buying insurance) or, if in the car (and now health) market where not participating is forbidden or penalized, effectively leave the market as much as possible by buying the cheapest plan they can get their hands on?
Doesn't necessarily mean underwriting restrictions on stuff like credit score, gender, etc. are a bad policy or business choice, just that you create undesirable behavior as a consequence that has to be balanced against any perceived benefits.
edit: to address the OP, racism is illegal (and immoral, but let's be realistic the illegal part is a stronger deterrent) regardless of whether or not it is statistically correlated with risk.
Last edited by ALackOfCreativity; 10-09-2012 at 05:29 PM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
