Envy and ignorance, insurance, causation vs correlation

Mike takes a look at How Does Wealth Affect Auto Insurance Coverage and Costs? and provides an illustrative example.

“These days, auto insurance companies offer discounts based on your education, profession and wealth. They don’t tell that they give you discounts because you are rich. … Effects of credit score cannot be ignored either.

These revelations may come across as discrimination and many states fought using credit score as a factor in premium calculations. However, the fact is that companies and the studies carried about by some states showed that people with better credit history are less likely to make claims.”

As Mike points out, the discrimination is based on factors that insurance companies have found correlated to their costs. However, discrimination is a bad word these days. There is an ongoing effort to eliminate any form of discrimination. Perhaps one of the better examples of this has been in the housing market. Banks and other lenders were forced to eliminate their traditional methods for discriminating between who was likely to pay back the loan and who wasn’t. The result was the housing crash between 2005 and 2010.

Discrimination, whether in product quality or in business factors, can lead to increased quality, better production and reduced costs, and a growth in wealth … but it also results in winners and losers and that, for some, is morally repugnant. The choice is better wealth and health for all as in the U.S. or what people suffer in places like Cuba and Venezuela. The underlying problem is that some can’t see this reality.

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