Measure 42: Bad for Oregon

We have seen some pretty crazy ballot measures over the years. This year we escaped from a really dangerous ballot measure that would have established “open primaries.” Fortunately the public saw through that one. There are some dangerous ballot measures that did make it onto the ballot. Two measures (46 & 47) would make the campaign finance rules even more oppressive than what we have now. There is also Measure 44 which moves us toward price controls on pharmaceuticals.

The really crazy ballot measure for 2006 is Measure 42. The insurance companies use a number of parameters to set insurance rates. One of the measures is a person’s credit score or other credit worthiness measures. The actuaries that work out the formulas for setting rates must have data that indicate there is a relationship between a person’s credit rating and the risk they are insuring. It would be foolish to use this factor unless there is a connection.

I spoke with a State Farm agent and found they use a proprietary measure of how well the prospective customer manages money. With this measure, a high income person might be required to pay a higher than average premium if he or she is a poor money manager and a low income person who is a good money manager may pay a lower than average premium. State Farm has done studies based on their huge customer base and find inclusion of this measure provides a more accurate indication of risk than would be available without it.

I am not surprised using some credit worthiness or money management measure would be a good predictor for liability insurance. If a person makes foolish financial decisions, he is likely to make other foolish decisions that could result in a liability claim.

The sponsors of this initiative seem to think the State should dictate how the insurance companies determine their rates. Measure 42 would prohibit the use of credit score or credit worthiness in determining insurance rates. All this will do is raise the rates for some people and lower the rates for others. The overall risk to the insurance company might actually go up. When an insurance company can accurately predict risk and set rates accordingly, the premium income should match, on average, the claims cost. To the extent they cannot do this, their risk is increased and the average rates will have to increase.

Measure 42 reduces the ability of insurance companies to make those who create more of the risk pay more and those who create less of the risk pay less. That is what I call nutty.

You should think carefully before you vote for Measure 42. It could cost you hundreds of dollars.

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Posted by at 08:13 | Posted in Measure 37 | 38 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Jerry

    I agree completely. If people don’t like how an insurance company computes rates they can simply shop with another company.
    We have all seen, time and time again, when government gets involved in the private sector in the dream of saving people money, it NEVER happens. NEVER.
    Less government regulation is ALWAYS better – the market does a wonderful job of keeping things in check and balanced. It works every time it is tried.

    • Captain An-on

      Oops, i did forget to add that less government is not always better. Government intervention brought you cheaper airline prices because lowered the cost of entry into the market with regulation. Government intervention brought you food nutrition information that includes calories, ingrediants etc so you can make more informed decisions based upon your dietary needs. government intervention brought us the SEC who monitors coroporations who have a penchant for trying to cheat the public and cook thier numbers to get a better stock price; government intervention brought you safer cars with seatbelts, airbags, lower centers of gravity etc.

      While in some cases it may be best to have less government, the ideaology and philosophy that government = bad and less is best is a crock of ca ca. If that were the case, those who believe less gov is alwasy better may want to move to costa rica where there is hardly any government. no consumer protection, no national army, minimal taxes etc. they truely have a less is best situation. enjoy your economic prosperity there!

  • Captain An-on

    I completely disagree. *IF* the companies can provide raw data that show a reduced credit score actuially increases the likelyhood of an accident, then, i would begin to rethink my stance. However, the companies have not once shown ANY evidence to substantiate thier claim.

    What they are saying could just as well be construed as: Those who are blonde are more likely to be involved in accidents and therefore should have higher premiums. It doesn’t make sense.

    “*I spoke with a State Farm agent and found they use a proprietary measure of how well the prospective customer manages money. With this measure, a high income person might be required to pay a higher than average premium if he or she is a poor money manager and a low income person who is a good money manager may pay a lower than average premium. State Farm has done studies based on their huge customer base and find inclusion of this measure provides a more accurate indication of risk than would be available without it. *” I’m sorry, but being a money manager is not a direct link to risky driving behavior. Age is a direct contributor because of experience. Zip code is a direct link to risk because some neighborhoods have higher crime rates. But since when does how many times a person has been late on a bill directly affect thier ability to turn left, hit the brakes more quickly etc? It doesn’t.

    *”If a person makes foolish financial decisions, he is likely to make other foolish decisions that could result in a liability claim”* – Holy cow. Let’s start looking at the numbers of who make foolish investment decisions. After all, those who don’t do thier research on companies or read over the annula reports are more likely to not read thier car manuals and make foolish driving decisions.

    This is a red herring. This is just one more way for the insurance company to bilk money out of the consumer. and there really is no choice because all the companies are in collusion. They have no incentive NOT to participate because it raises revenue and profit substantially.

    Like i said, they need to provide hard, accurate data from a reputible survey agency that shows there is a direct and SUBSTANTIAL risk increase – otherwise, it is not justified. I think one reason we HAVEN’T seen one iota of data is because the numbers don’t support thier claim. All we get is “you know why this measure is bad? because bill sizemore supports it.” yeah, well, i don’t like Bill’s politics but that has nothing to do with this measure and the arguments behind it. All the commercials on tv say “I did the research and got the facts” and if you look closely, the computer behind her has the voters pamphet on the screen. No facts in there, just statements and opinion. If there were facts, they would have posted them, and in an easily read manner that clearly shows WHO did the study so consumers can know if it was a real firm who is independant.

  • Wayne Brady

    If the insurance companies had the ability to raise the rates at will , they would not need to use credit worthiness or any other measure to measure risk.

    If these measures did not work, it would make no sense to use them.

    These companies don’t want to talk about the details of their credit worthiness measures because they are part of their competitive advantage. If a company can predict risk better than their competitors, they can gain market share by offering good rates to people who are a low risk.

    I have absolutely nothing against Bill Sizemore. I have supported measures he has sponsored in the past and was surprised to see him backing this one.

    • Robert Martell

      Mr Brady You are only promoting the big business of insurance with the notion that people with bad credit are more likely to have the most losses.

      People with bad credit are not anymore a risk for losses than one of your good credit people you and the insurance industry are trying to use scare tactics to defeat measure 42 and I hope you lose.

  • Tim Lyman

    Anyone who believes that insurance companies have consumers’ best interests in mind has obviously never had to file a claim. The notion that insurance companies use credit information to keep the rates lower is laughable. By doing everything they can to screw their insured out of just settlements they helped give rise to the overabundance of trial lawyers.

    Credit scores should be used ONLY to determine credit worthiness. Not for insurance rating and not as hiring criteria by employers. Very few people wake up one morning and say “hey, today I’m going run up a bunch of bills and stiff my creditors.” Most people in serious financial trouble get that way through divorce, illness or job loss – circumstances over which they usually have little or no control. Kicking someone when they’re down is not the American way.

    Republicans and Democrats alike have spent the last two decades bending over forwards (or rather, bending you and I over forwards) for the banking and insurance industries to the detriment of the middle class. It’s time we started reigning in these usurious bastards.

    • Clay Fouts

      “Anyone who believes that insurance companies have consumers’ best interests in mind…”

      Like all for-profit corporations, insurance companies don’t exist for the benefit of the consumer interest; They exist to make money for their shareholders. By force of the laws which define their existence, corporations are blind, sociopathic entities who can’t account for any of their effects on the environment, individuals, or society as a whole save for what pencils out on the bottom line.

      “It’s time we started reigning in these usurious bastards.”

      Which is why it’s our patriotic duty to our fellow Americans to guarantee access to health care. We need to take it out of the hands of usurious medical insurers, HMOs and pharmaceutical companies and put it back into the service of the people.

    • Paul G

      Insurance rates are not always based on risk
      and profilt. We “forgive” accidents after seven years. A bad record as a youth predicts bad driving today. We don’t raise rates on people with chronic diseases like Parkinsons, arthritis or MS. I’m sure if they could get away with it insurance companies could find other ways to determine risk. Genetic history and ethnic back come to mind.
      The reason we don’t consider these risks are because we value a letting someone start over. We don’t hold uncontrolled factors like illness agains people. As a society we make these choices that reflect our values.

  • Wayne Brady

    I never said they necessarily had the consumers’ best interest in mind. They will have to treat the customers well if they expect to keep their business.

    The customer and the insurance companies have an area of common interest. The more accurately the insurance companies predict risk, the lower the rates will be for their customers. Those who are low risk are the obvious beneficiaries of this. The overall rates will be lowered because the high risk potential customers will either seek another insurance company because of the high premiums or they will pay high premiums to compensate for the risk they impose on the insurance company.

    The company with the best risk prediction algorithms will have the lowest insurance rates for most customers.

    The companies are not

    • Dianne

      I agree, what about people who have no accidents no insurance claims but due to loss of job, medical costs, etc they have bad credit, why should they have to pay higher premiums because their credit score is bad. I don’t think the insurance companies have any business looking at a persons credit report.

    • Joe

      I agree with this question, i am living proof of someone who does not have good credit because of a divorce in which i lost everything. but have not had a ticket or accident in over 11 yrs, but have been excluded from some insurance companies ncompletely or have been told i would have to pay extrodinary rates because of a bankruptcy. I have had no other claims of any kind either. Their decision in this case was solely because of my credit history.

  • Capt An-on

    But once again, someones ability to pay bills on time does not have a direct link with thier propensity to switch lanes without a signal, run a red light, talk on the cell while driving, drive while intoxicated, or just be parked and have someone rearend them (remember, we’re a no fault state – ANY accident counts against you). No direct correlation.

    Not only that but credit scores are often incorrect. I believe i’ve heard one in five credit scores has errors. That means someone’s insurance rates goes up without fault of thier own. Also, anytime you apply for credit or financing (car, house, tv), your score is lowered. So those occurances can directly effect your insurance rates. Tell me again how that is fair?

  • bluesman

    I take great offense to the measure 42 ads on television that say that a person with bad credit is more likely to be involved in or cause an accident. What a bunch of Bull—-!!!! When establishing rates a person’s driving record and age as well as location need to be factored not credit. Good people and drivers have things happen in their life that effect their credit rating and so what—pay a penalty for that? The people more likely to cause an accident are young people not paying attention or the woman driving her big suv, talking on her cell phone, putting on her makeup and proceeds to plow through a red light, oblivious to where she or he is. Some people can’t walk and chew gum at the same time let alone drive and yak on a cell phone–these are the potential accident causers–not low credit score!!!! I’ve seen it happen time and time again!!! Stop this elitist mind set that a great credit score makes you some kind of hero and better than everyone else—cause you are not!!!!!

  • Wayne Brady

    If credit worthiness did not predict risk there is no reason for insurance companies to use it.

    Having the very best ability to predict risk gives an insurance company a competitive advantage. If they can accurately predict risk, they can win business from those companies that cannot predict risk as well. The company with the superior risk predictor can give better rates to the people who will present them with the smallest risk. The people who present a high risk will have to pay a high premium. Either the insurance company will be paid well for taking the risk or the high risk person will go with another insurance company.

    A person who exhibits risky behavior in one aspect of his life is likely to exhibit risky behavior in other aspects of his life. In any case, the data prove that credit worthiness is a good predictor of risk.

    • Chris

      I believe it is more than obvious that this is just an excuse to increase the insurance company profits. They come up with this, what many would call discriminatory, plan to increase rates on a certain group of people. In their ads they imply that this measure will cost all Oregonians if it is passed. SURE IT WILL because they will still increase everyone’s rates continuing to use the same excuse with the same “we can do anything we want to” mentality!
      I guess I am biased because I believe insurance has mutated into a perversion that we cannot escape from and there is very little left of what it was meant to be or do. They have become stock holder slaves and build extravagant offices and claim to be loosing money! I plan to vote for 42.

  • Liz Hansen

    Measure 42 is presented on the ballot is to plant a seed that people with bad credit are causing the insurance companies to lose money. In reality, the premiums we pay don’t protect us. Does anyone really receive full compensation for loss? Not in my experience. I have been pushed to near bankruptcy twice due to corrupt tactics. I don’t know of anyone who has ever scored big due to a scam or who one a huge settlement on a claim. Those cases are rare.
    The insurance companies work with each other to minimize their pay outs. In other words, they secretly agree not to dicker with each other. Because of this, the consumer loses. This is call collusion. It also defines the presence of a cartel. Not all acts of collusion are illegal. Measure 42 is actually just a cheap infomercial for the insurance industry “The American Cartel”. Rather than ballot debate would be for “Insurance Reform”.

  • Wayne Brady

    For those of you who feel the insurance companies can raise rates at will, Measure 42 will do nothing to stop that. If they are colluding, this measure will have no effect.

    • Dan

      Then why not vote for it and protect those that have low credit scores but are good drivers?

    • Linda Lawrence

      I agree. I have a terrible credit score…yes, I made ONE LARGE financial decision that wiped me out and put me soaring downward. I filed bankruptcy when I could no longer handle all the small debts and medical bills I acquired over time. It has nothing to do with my driving record. I have never had a speeding ticket, an accident that was from poor driving, etc. Unfortunately, I did have a weather related accident this year that put me in further insurance-doo-doo…seems you are at fault even though no fault is found and no citations were issued. Your insurance paid so it goes against you……That plus my poor credit means that if I want to drive a newer SAFE VEHICLE I can barely afford the high interest payment AND the jacked up insurance (rated on my credit and increased because of ONE ACCIDENT involving another vehicle, in 40+ years of SAFE DRIVING!!!) The way the insurance rates are calculated using credit scores, combined with poor credit history FORCES the average person who falls into that category to buy cheap, liability only vehicles which are NOT safe to drive on a daily basis. Many people are left stranded at the edge of the road because of this, or find themselves unable to get back and forth to work because their vehicle wore out before they could replace it with another junker…..I was in this position and I am a white collar professional…..it is demeening and should not be…no matter what level of profession you have, blue collar, white collar…it doesn’t matter. If one can afford the high-interest payment based on his credit history, he/she shouldn’t further be punished with insurance coverage based the same thing….it gives you no incentive to better yourself when you are forced to drive junk. Driving history, yes, that should apply, but credit history, no….My own father has perfect credit. He is 80. I seriously doubt he is safe to be on the road due to some health issues. So far he has been lucky and not had any of his doctors request he be tested (poor eyesight, etc.) I wonder how many others far worse off than he is are out there paying regular rates for insurance with a credit for perfect credit history when their eyes, hearing, reaction time, etc. are far from adequate. Is that fair to any of us?????? It really works both ways, doesn’t it. Measure 42 might not be perfect but it is a start……

    • Stephen Rice

      I am in favor of this measure. I had a leagal problem with the state of Oregon where I asked a state employee a question and her answer turned out wrong. Her employer then took me to an administrative case hearing where the judge fined me $1,300. The state agency felt I should pay more ($33,000). My only way out was Chapter 13 bankruptcy. Now my credit is ruined yet my driving record is good. I have had only one violation in 23 years of driving.

      What really gets me is the fact that we insured have to pay extra for uninsured coverage because the state and the insurance industry can’t figure out how get the uninsured to pay for insurance. I feel like suing the state to pay for my uninsured coverage. I pay for insurance why am I penalized for those that don’t have insurance. I thought it was the law to have insurance.

  • Liz Hansen

    You do have a point. The measure does target the lower income bracket, as well as those going through rough times.

  • Wayne Brady

    Dan doesn’t understand my position. I think using the credit measures is a good thing and should not be outlawed. I think we all come out ahead by letting the insurance companies use measures like this to accurately predict risk.

    • Loren

      GIVE ME A BREAK! How does my credit score reflect my driving record? The insurance companies just like to have any excuse to charge more thatn their services are worth. My driving record is spotless at age 44. My credit score is bad after 2 divorces. Since I can’t get credit, I have to save my money to pay cash for a car. Does the value of my used $2000 car compare to the price of a new Mercedes? Why is my insurance higher? And they are trying to say that I am more likely to file a claim….and have them raise my rates again? Wake up. Just because Mr Sizemore is behind this bill doesn’t make it bad. Hitler commissioned the Volkswagen. Does that make the VW bad? If you’re in a high income bracket and are reading this, don’t worry, you’re rates won’t go up to make up for the poor people. The insurance companies will raise them for some other reason they dream up. Maybe they’ll rate it on how stressfull your job is.

    • You must first demonstrate that it can predict anything. We have never seen a study that proves that Poor credit holders have a higher risk in proportion to the total body insured. I lay this out well on my blog. Feel free to leave comments and evidence showing the studies.

  • Capt An-on

    I would say Linda’s story dispells your belief. SHe is getting screwed because of a bad financial decision. and yet, she has years of a safe driving record.

    The insurance companies don’t have our best interest at heart… they have thier own. Take home owners insurance. most companies, if you use it, you lose it. they only allow you one claim and they drop you. How is that helping anyone? thier system is basically: pay in pay in pay in. once you claim, you’re out. i don’t trust them with auto insurance either.

    • Rich P

      I don’t know any good company that will drop you after one homeowner claim. Insurance companies get a bad rap, but for the most part, do care and take care of their clients. Also on the use of credit, we need to separate incidents from paid claims. It is proven that as a group, people with poor credit COST the insurance company more. People that have their financial affairs in order tend to not file claims for the small stuff. They try and self insure small losses, they carry higher deductibles and only use the insurance for the real reason we have the product — the big stuff (ie fire, major liability situation, large wreck, death, etc…)

      • Captain An-on

        Well, Howard Clark, a very respected consumer protector and radio host on conservative talk radio has discussed the one strike and you’re out actions of the home owners insurance block. what companies do YOU know of that don’t do that?

        • Rich p

          I like Clark Howard, but he is also cheap and probably buys insurance from a 1800 company. There probably are some that drop you one loss. I know Farmers, St. Farm and Allstate don’t, especially is you have your home and auto with the same company.

    • SpUn

      Insurance companies do deserve a bad rap…

      Do you know that if your parked car is hit that you will pay more for your insurance? Get your parked car hit twice and expcet to pay an extra $800 a year.

      According to the insurance companies any accident regardless of fault makes you a higher risk customer.

      So if you parked car gets hits by a drunk driver… you will pay more.

      The insurance companies have gone too far.

  • kit

    Insurance companies charge people based on LOTS of factors, not just credit and driving record. It’s a business, and they’re going to make the most money they can, so they’re going to use as many factors as you can imagine to determine what rates they charge, credit is just one of them. Consider age, car, miles driven in a year, city or rural driving, all of these things are factors. It sounds like everyone is giving to much significance to credit. Check out stop 42.com

    Besides, Oregon already has a law limiting how much an insurance company can use credit in determining insurance rates. I think the measure is a bad idea on the whole.

  • So There

    Hmm, so why don’t we just sterilize people with terrible credit? After all, someone with a questionable credit history certainly wouldn’t make a good parent! Silly, silly me to think a person’s DRIVING HISTORY would have anything to do with their risk as a DRIVER.

    My credit score has no reflection on my driving ability, technological prowess, social networking, legendary pie crusts, kindness to animals, and a keen eye for accessorizing.

    Sounds to me like, as well as targeting the lower income bracket in general, the insurance companies want to take advantage of the fresh crop of student loan victims.

    Wake up, people. Making assumptions about a person based on their credit history is a dangerous practice, and it’s frightening to think that simply existing in this country is becoming increasingly more dependent on the Almighty Credit Score. The last I heard, the Almighty Credit Score is NOT a branch of government, but a somewhat arbitrary set of numbers that can cripple a decent citizen if he or she makes one wrong decision.

  • Most of America was hit hard with 9/11 and stock scandels like Enron. People who never had credit challenges now do at no fault of their own. Should we allow them to be punished further by insurance companies?

    Visit my homepage for more.

  • Concerned Citizen

    Ths fight against measure 42 is being subsidized by your insurance premiums. The person in the wreck at the side of the road, and utltimate costs — subsidized by your insurance premiums. The insurance companies have no business checking your credit score. Its a game played, and now they are playing you — by telling you how you will subsidize the driver with poor credit. Driving isnt about a credit score. The commercial on television makes broad claims about how a driver with bad credit is more likely to be in an accident. i do not see this study of driving trends presented in any form other than a one minute blurb of emotional choice. I have driven for 32 years, and it has never been about a credit score. If you really want this to be about a credit score, perhaps the police should check your credit score, when you are in an accident, and anyone below a 720 will be taken to jail, and your car taken away. Are you ready for that? Do you feel that comfortable about your score on a given day? I deal with credit scores on a daily basis, and most of you are not as great as you might think…

    • melz222

      *VERY GOOD POINT!* Why is it that they don’t report to the credit agencies, *especially* if they’re going to be using it against the people that have poor credit?

  • chaz

    Crazy! If the insurance company uses credit scores to assess risk, why don’t they report to the credit agencies? My record of good payment to my insurance co. does NOT get reported to any credit firm. Why not? Maybe it would help boost my credit rating and lower my rates!

  • concerned citizen

    This is just about the crazy things that insurance companies can do. My husband and I have had credit problems. It happened when my husband was “laid off” his job of 17 years, so the new owners of the company could hire cheaper workers. At the same time, I lost my second part time job. We have struggled for 4 years to get back on our feet. I have been in two accidents in my 40 years plus driving record, neither one my fault. My husband hasn’t had an accident. Credit scores have nothing to do with how safe a driver you are. Car insurance is mandatory in Oregon, if someone can’t afford insurance, what does one do? We already pay insurance for under insured and uninsured motorist.

  • Michael J Boros

    I support measure 42. Peoples credit score is by far no crystal ball when it comes to insurance claims. As a person in the Collision Repair Industry, I’ve seen direct correlations with rainy days and slippery roads as well as reduced visibility to be a factor in auto accidents. But in the 20 years of Collision Repair, I cant see at all how credit scores affect driving habits. Another thing I’ve noticed is, most of the accident claimants drive nice new cars and all appear to have good credit by the looks of their vehicle. No insurance is paying out thousands for repairs on junk cars. Just think about that people.
    The only money lost by the insurance companies on this deal will probably be the inability to sell credit information to third parties, which is a booming business these days, and the kick backs or business deals from the third party paid credit checkers which is another booming business. Its all about the side $$$$$$. I believe Oregonians are not fooled by the insurance companies mumbo jumbo commercials. Another important thing to remember is, if the experiment to find correlations with credit scores and insurance claims isn’t measurable by mathematics or if the numbered results are not closely the same in each test, then it is not a conclusive test, therefore it is a Null Hypothesis. This means by the laws of science, credit scores and driving habits are not related.

  • Rachel Jenson

    Here is a good example why not to endorse Measure 42.

    59 year old driver. Loyal Customer for 22 years. In 22 years not one ticket, not one accident. Customer has non-smoker, non-drinker rate discounts and covers her paid-off vehicle with full coverage above the state minimums.

    29 Year old has an affair with his wife. Wife goes ballistic and enters the Husbands place of work and shoots her husband. Husband dies. Company in which the shooting took place goes under. All employees are left jobless. 59 year old driver is an employee of this company!

    59 year old has difficulty because of age finding a new job. Eventually losing house and having credit score drop dramatically. Customer still loyally carries full insurance on vehicle despite financial situation.

    59 year old customer (for 22 years) receives letter in the mail saying the cost to insure her paid-off vehicle is now going to increase in monthly cost due to recent trouble in her credit report.

    And you think that this is fair treatment? What about her driving record? What about not one late payment in 22 years? What about all her discounts? Everything she had earned from this company?

    This is about maximizing profitablilty for the insurance company not about assesing risk of the driver!

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