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Monday, September 11, 2006

McGavick: Taking Credit/Denying Credit

Posted by on September 11 at 10:59 AM

Mike McGavick told KING 5’s Robert Mak last night that he didn’t use credit scoring to axe customers, but he told insurance industry insiders a different story back in 2001.

Credit Scoring is pretty confusing. So, let me start at the beginning.

Last Friday, I was down in Olympia where the Democrats were arguing in Thurston County Superior Court that the Office of the Insurance Commissioner must release the data behind its 2003 study into Credit Scoring, a controversial insurance industry practice—outlawed in in a number of states now, including Washington state—where companies drop customers based on credit history, rather than germane things like driving records. (It’s not against the law to use credit scoring to set premiums, however. Although, it strikes me as crummy ethics.)

The Democrats think the data will show that former SAFECO CEO Mike McGavick pushed credit scoring.

The Insurance Commissioner is fine with releasing the data, but SAFECO was arguing to keep the information out of the public’s hands.

The judge said he would look at the data in question—to see if its really proprietary stuff as SAFECO argues, and he’ll issue a ruling on the 15th.

Meanwhile, McGAvick was on the Robert Mak show this weekend, and Mak asked him about credit scoring. Here’s the conversation.

Mak: The Wall Street Journal reported that when you were head of Safeco, the insurance company, it cancelled people’s auto insurance based on their credit score. Do you believe that’s a fair way to assess people — by their credit?

McGavick: Yeah, they shouldn’t cancel people just for credit scoring. What they should do, what we did—and I want to be clear—when I got there, there were a lot of practices going on at Safeco that I don’t think were right. So you’re not talking about the very early Safeco practices. The programs I put in place were programs that use credit as a part of a larger way of evaluating the risk, not as a single determinant.

But wait… here’s McGAvick quoted in an April, 2001 Quarterly Conference call where he boasts about canceling policies based on credit scoring: “We have gone back in and in fact this month was the first month that we began to step up aggressive nonrenewal of low credit score related businesses.”

And here’s McGavick in a July, 2001 trade publication interview: “SAFECO will be making some major changes in the way it reviews homeowners business, namely in stepping up the use of insurance scoring, which takes into account personal credit histories—including bankruptcies, foreclosures, late bill payments and outstanding debt—in setting premium rates or making underwriting decisions. Most of the industry uses this method for auto business, but SAFECO would be the first to use it for homeowners.”

CommentsRSS icon

A clear picture of McGavick has emerged: He'll tell you whatever he thinks will help him.

Much like the current administration, come to think of it.

They should cancel people's insurance for driving drunk at .17, that's for sure!

Alaskan Mike needs to stop LYING all the time.

Credit scoring is a valid criterion for setting rates. Those with low credit scores have higher loss ratios. Every time insurance gets more accurate in setting rates, the right people, ie those with less chance of getting in an accident, receive a rate decrease. If you eliminate credit scoring as a factor, an awful lot of responsible people will receive rate increases.

There is nothing valid about credit scoring unless you are an insurance company. "Responsible people" will receive rate increases whether there is credit scoring or not. All those bastards do is take, take, and take some more.

The insurance industry in its present form, in the words of Hunter S. Thompson, needs to be fucked, broken, and left in the ditch. It is a racket that needs to be regulated until its eyes bleed.

In WA, the insurance industry already is regulated to the eyes bleed. No insurance company can set its own rates. Rates must be submitted (increases and decreases) to the Office of the Insurance Commissioner, and six to nine months later, they may or may not be approved. You have to submit reams of actuarial data that the state's actuaries then go over. Additionally, it's only interest on investing the premiums that provides the profits for insurance companies. 94-102% of premium amounts are paid out in claims.

So, how does your credit rating affect the way you drive, or the likelihood that your car will be vandalized or stolen?

Exactly. You can be a massive drunk like Alaskan Mike McGavick and still have a really high credit score - but be a totally irresponsible driver who drives around loaded to the gills.

I'm not an actuary. The actuaries found the correlation between better credit scores and lower loss ratios. I would guess though, that people who pay their bills on time, don't overextend their credit, and do all the other things that get you a good credit score tend to be pretty responsible people, and that sense of responsibility leads them to safer driving. It's not foolproof. It's statistics.

don't let mike fool you...he knows he cancelled policies based on credit only (i saw it happen). they actually got in trouble with insurance commissioner. his company also used to charge more for a not at fault accident than they would if that same accident was at fault. that as well got them into trouble.... how do i know...well i work with the big insurer. i was there i saw it all happen. drive safely.

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