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.