The Supreme Court looks at insurance
A common practice of insurance companies is giving discounts to people with good credit scores. The adverse way of looking at it is they penalize people with bad credit scores. A couple of people were unhappy that their credit scores were used to rate their insurance and sued. It made it all the way to the Supreme Court. The Supreme Court sided with the insurance companies. Some people weren’t too happy with this:
Consumers took a shot to the gut this week when the U.S. Supreme Court unanimously ruled that insurers don’t have to tell them when they are paying more for auto insurance because of their credit scores.
Many drivers don’t even realize their credit scores are used in the complex mathematics used to calculate insurance rates. Ditto for most homeowners. But it€™s true in most states; credit scores are used to raise rates for some consumers and lower them for others. There€™s no way to who is paying more and who is paying less or how much the credit score penalty is because, as I’ve said, it’s a secret……
In a not-so-thoughtful analysis, Justice David Souter offered one line of reasoning to rule in favor of insurers: Credit score penalty notices would become so commonplace that they would “go the way of junk mail.” Really, he did write that…..
Birnbaum and others have long argued that consumers should know exactly how much the penalty is, and what the ideal credit score is, so they can check for credit report errors and aim for the ideal score. That was the argument put forth by plaintiffs in the Safeco and Geico cases.
But Geico offered a more tortured, and ultimately more persuasive, argument. It said that it could calculate insurance premiums based on a “neutral” credit score — in other words, what consumers would pay if credit scoring was never used at all. Only consumers who paid more than this “neutral credit score” rate suffered an adverse action and should be notified, the firm argued. The judges agreed….
In this case, our nation’s highest court of referees missed a foul call. The tortured logic of protecting us from junk mail (why start now?) is comical. Allowing insurance companies to set the bar for when adverse notices are sent is akin to giving the fox the keys to the chicken coup…..
Not all states allow insurance firms to consider credit scores. The practice is banned in California, for example. Call your state legislator and ask him or her to support a ban on the use of credit scores to set insurance rates in your state. Congress could amend the Fair Credit Reporting Act to require more adverse action notices by insurers, but that€™s a pipe dream at the moment…..
I got all kinds of issues with Bob Sullivan’s gripes.
- What he seems to want is for the insurance companies to notify people when every credit score is evaluated. That’s not the intent of the law. The law is that an ADVERSE result be reported. What Safeco and Geico stated was that they do that. What they don’t do is report is the people who are not penalized. That’s the intent of the Fair Credit Laws in the first place. Using Sullivan’s logic, every single time someone accesses my credit score, not even accessing my credit history, they would be required to send me a notice. As Souter noted, people would be inundated with credit reports. That’s just not necessary and achieves nothing. All I want to know is if there is something on my credit that would cause a bad report. If I get an adverse report from someone checking it, that tells me there is something bad on my report. If I don’t get penalized, then there is nothing bad on my report. That part can just be assumed by the average consumer. There is no reason to assume otherwise.
- Sullivan cites California as a state that does not allow credit scores to affect premium rates. Look at the lowest rates in California and compare them to the lowest rates in states that do not bar that practice. I’ll bet I pay a LOT less in auto insurance than anyone in California does for equal coverage.
- What Sullivan is proposing is my auto carrier be compelled to carry people with bad scores in the same pool as I am. All that does is penalize those who have good credit scores. It’s a very simple fact that people who scam insurance companies most likely are in financial trouble. People in financial trouble most often have very bad credit scores. Adversely, people who are financially responsible and are not in financial trouble do not have bad credit scores and do not usually scam insurance companies. Being as we are less likely to scam an insurance company, we are less likely to file a claim, people who file fewer claims should be rewarded with lower premiums. That’s the way it is, that’s the way it should stay.
- He singles out Souter as if Souter had the only vote, but he didn’t. In most cases all NINE Justices supported the decision. Some dissented on varying interpretations of the reasoning, but when nine lawyers agree on something, there must be some reason to it.
This just strikes me as more of the personal responsibility issue I’ve been harping on. People who have bad credit scores KNOW they have bad credit. What Sullivan wants is basically to eliminate using credit scores to rate insurance premiums. In other words, you can rip off financial institutions all you want, but those financial institutions will be forced to treat you exactly as anyone else. That’s not the way I see things. Some people accept the responsibility of doing everything they can to be financially responsible. Some people have to be forced to be financially responsible as they don’t value others’ stuff. If something like cheaper insurance helps compel them to behave responsibly in our society, so be it.
Now, don’t take this as a blanket statement that I’m bought and sold to insurance companies. I’m not. I think they’re the biggest part of our health care crisis. However, I think the Supreme Court got this one right and that’s the only point I’m arguing here.