Oregon Measure 42

It's election time, and I would be negligent if I didn't have anything to say about the ballot measures. Let's start with Measure 42:

No insurance company, or agent acting on the part of an insurance company, which sells or markets medical, health, accident, automobile, fire, or liability insurance, or any combination of policies providing such coverage to consumers, shall quote, offer, or charge, either directly or indirectly, a rate or premium which is based solely or in part upon the credit score or credit worthiness of the insured or applicant for insurance.

As an advocate of freedom, including the freedom of contract, I am resolutely opposed to this measure. It is wrong for the government to intrude on a company's pricing policies; they simply have no right to do it.

The voter's pamphlet included five arguments in favor of the measure, four of which were from the author of the measure, Bill Sizemore. Let's start with the other one, from Loren Parks.

The only "argument" in this argument is an Argument from Personal Incredulity:

It makes no sense to claim that people are more likely to get in an accident because they have bad credit. I think most people know that instinctively. Insurance companies do it because it is easier. All they care about is maximizing premiums. They don't care where the money actually comes from or whether their rating system is fair or logical.

Strange… I have the opposite intuition. I would be surprised if there wasn't a correlation between credit score and insurance risk, because common factors influence both. A person whose is responsible with money is more likely to be responsible with their property and their health, which implies a lower insurance risk. And I believe this extends to things like automobile accident rates; people who have a greater degree of personal responsibility are more likely to avoid dangerous situations.

The most interesting argument for the measure is the third, with the heading "Credit Scoring is Anti-Free Market". I'll respond to it line-by-line.

My name is Bill Sizemore, and I wrote Measure 42. I am a normally a "free market" kind of guy. I do not believe in regulating business unnecessarily, because competition and free market principles tend to eliminate injustices and overpricing over time.

Beware anyone who says they are "normally" something good. They're admitting in that same breath that right now, they're something bad.

However, a hand full of very large companies have started a trend in the insurance industry that is anti-competition and anti free market. I will use this space to explain to my fellow free market conservatives why credit scoring is truly anti-competition.

Who is he addressing? I would argue that "free market conservatives" are mythical creatures, but for Bill claiming he is one. And if he's a free market conservative, I don't want to have anything to do with free market conservatives. They should be more honest, drop the "free market" act, and simply go by "conservatives". A true free market advocate advocates freedom in markets, not "competition". Worship not these false idols and so on and so forth.

First of all, when government requires that we buy a product, as is the case with insurance, it is no longer a free market product or voluntary transaction. When people are forced to buy a product or service, the market is automatically tilted in favor of the seller and reasonable controls must be installed to insure that consumers are not gouged.

This is true. And the best solution is for government to stop requiring us to buy such products. Otherwise, you'll get an object lesson in how one interference with the free market leads to additional interference. Always in the name of the public good, of course!

Also, credit scoring discourages price comparisons and shopping for lower rates. Under current law, insurance companies cannot use credit scoring to raise the rates of current customers for their existing policies. However, if a customer adds a new policy or switches companies, credit scoring can be used to impose higher rates. The result of this practice is to build a moat around the companies and keep existing customers from shopping for lower rates. This is clearly anti-competition.

Bill volunteers another example of how government has already interfered in this market. In addition to requiring people to buy insurance, it also places restrictions on the seller's freedom to set prices. And now he's proposing a third!

A skeptic like me would point out that the anti-competitive moats he's complaining about exist because of the restriction on the insurance companies' abilities to set prices. If they were free to raise the rates of current customers' existing policies, and actually did so, it would restore the customer's incentive to shop around.

Shopping for lower rates is the best way to insure competition, but credit scoring punishes customers for shopping around or switching companies.

Wrong. It's the law that punishes customers for shopping around or switching companies. But Bill Sizemore promises to fix the unintended, undesired consequences of the law with … another law! Which certainly won't have any unintended consequences. Certainly not like that previous law's. Absolutely, guaranteed. We definitely won't need any legal tweaks a few years from now.

If credit scoring was banned, as Measure 42 would do, not one insurance company would go out of business. The industry would simply be forced to use honest, meaningful grounds for establishing premiums, such as driving records and loss histories.

Insurance companies should be required to base rates on actions or events that genuinely are related to the risk the companies assume when insuring a customer. Credit scoring is simply not such a factor.

Credit scores are honest, meaningful grounds to factor into premiums. Measure 42 should be voted down.