When hard, empirical, actuarial data is thrown to the side because something doesn’t seem "right," it begs the question of education. Does Florida’s CFO truly understand the actuarial/rate-making/underwriting process?

It doesn’t seem "right" that a Boeing 747 should fly. The thing is huge and weighs hundreds of tons. It looks like it could never get off the ground. If we were to allow uninformed observers to make the decision, the aircraft would never attempt flight.

Yet aeronautic engineers complete with slide rules and computers cannot only be certain the aircraft will achieve flight, but they will give you the precise airspeed and angle of attack at which the wheels will leave the ground.

"When hard, empirical, actuarial data
is thrown to the side because something
doesn’t "seem fair," it begs the
question of education. Does Florida’s
CFO truly understand the
actuarial/rate-making/underwriting process?"

It’s the same with underwriting. Uninformed observers with little or no rate-making education will invariably call "wrong." Actuaries know better. The numbers don’t lie.

It’s a question of education. It’s a full understanding of the insurance concept. It’s a knowledge of the process and science of rate making.

Florida lawmakers, like lawmakers in every state, have been quite diligent in mandating insurance education for agents and brokers. Before you can quote your first motorcycle insurance policy as an agent, you must take 200 hours (that's five 40 hour weeks!) of insurance school, pass the course and then sit for and pass a very difficult and comprehensive state exam. Every year, you must take hours of continuing education to keep your knowledge base current.

Now consider the individuals in government we have hired and charged with overseeing billions of dollars in insurance transactions while managing an industry so crucial to millions of Floridians — persons whose knowledge and understanding of the industry must be razor-sharp.

What’s the insurance-specific educational requirement? CPCU at least? CIC? At least the state mandated 2-20 course, right? A two-night class at the community college maybe? A matchbook correspondence course?

None. Nothing. Nada. Zip. Continuing education? None. They are simply presumed geniuses, I guess, since we voters have demanded less demonstrated knowledge (far less) of our insurance regulators than we demand from that new girl in the auto agency quoting her first motorcycle policy.

Consider Florida CFO Alex Sink’s background: (As CFO, Sink is responsible for overseeing the office of the insurance commissioner and often interjects herself into statewide insurance issues)

According to Wikipedia, "Sink is a former president of Bank of America. She was appointed by former Governor Lawton Chiles to the Commission on Government Accountability to the People, and also served on Chiles’ Commission on Education. She was vice-chair of Florida TaxWatch. Sink has also served with the Florida Chapter of the Nature Conservancy, the Beth El Farm Workers Ministry, and as Chairman of the Board of the United Way of Hillsborough County."

An impressive resume and a bright lady to be sure, but do you see anything about underwriting or insurance in all that?

How about Insurance Commissioner Kevin McCarty? He hasn’t made it to Wikipedia yet but his online bio proclaims him an "expert" on worker’s comp and noted he has worked for the Department of Insurance for a long time.

Although McCarty is an appointed bureaucrat, under Florida’s theory that politics should best be left out of insurance regulation, the fact is McCarty injects his populist politics at every opportunity and does so in a manner that demonstrates, for McCarty, his politics trump any belief he may have in the integrity of the rate-making process.

In arguing against credit scoring in testimony before NAIC, McCarty used the example of life insurance - where uncontested census data shows that Blacks have an average life span of 73 years while Caucasians have an average life span of 78 years.

"Bluntly, McCarty believes in his
political heart-of-hearts that Caucasians
should be paying a portion of the
cost of African-American’s life insurance.
He will, and is, using the power of
his office to advance his personal,
classic, far-left, wealth-redistribution
political agenda."

McCarty testified: "While this outcome (African-Americans pay more for life insurance) might be technically correct from a purely actuarial perspective, it is counter to equal protection for consumers and not sound public policy."

Read that again! Mr. McCarty, an appointee (ironically to keep politics out of insurance regulation!), making a purely political case that minorities should not be paying for their own risk of loss. Of course, somebody has to pay for that increased risk. Somebody has to subsidize the cost of insurance for minorities — if it is not to be paid by minorities themselves.

Bluntly, McCarty believes in his political heart-of-hearts that Caucasians should be paying a portion of the cost of African-American’s life insurance. He will, and is, using the power of his office to advance his personal, classic, far-left, wealth-redistribution, political agenda.

McCarty’s statement that charging an adequate premium for a identifiable group of risks is "counter to equal protection for consumers" is sheer nonsense.

In essence, if actuarial data dictates a higher rate for a group for which McCarty has political sympathy, he wishes to ignore the data and pass the cost along to a group for which he has no political sympathy. This he calls "fairness." Fair to whom?

When Mr. McCarty speaks of "equal protection for consumers," he is really not interested in equality at all.

In the same testimony before NAIC (available on the FLOIR website) McCarty attacks Credit Scoring beginning with the news flash that some credit report contain errors and notes that "recent divorcees, recently naturalized citizens, the elderly, the disabled," and others may be "negatively affected." Yet he fails, amazingly, to address whether or not these groups also generate greater losses - which should be the prime issue.

Certainly driving records, the gold standard of risk assessment for auto insurance, may be unevenly applied as well. One individual may be forced to drive to work through an area of heavy speed limit enforcement accumulating 2 or 3 tickets every five years while another may travel an area of little or no enforcement. Some drivers may be able to afford lawyers avoiding convictions - some may not. There will be inconsistencies in any rating scheme.

Yet McCarty’s real objection to Credit Scoring is political: He wrote, "the use of these scores disparately impacts certain classes of people and thus has a discriminatory effect."   I'm not making it up. McCarty actually said that.

Yes, the use of Credit Scoring impacts all drivers - lowering rates for high scores and raising them for low scores commensurate with a demonstrated, proven risk. And yes, it discriminates. That’s the whole point, Mr. McCarty. You can’t have a rate making process without discriminating.

He went on to ask "whether there is a relationship between credit scoring and race/ethnicity and income status and whether this relationship is strong enough to prohibit its use given the American values of equal protection and nondiscrimination."

Let me answer those questions. Yes, there is a correlation between credit scores and demonstrated loss ratios. There is also a correlation between credit scores and race/ethnicity. Therefore, common sense would tell us, and statistics bear out, that there will be a relationship between demonstrated loss ratios and race/ethnicity. Thus, "equal protection" is best accomplished by allowing each identifiable group to pay an adequate and accurate rate - unless you are advancing a political scheme that would have one group subsidize another.

And wealth redistribution, Mr. McCarty, is not what the citizens of Florida are paying you to accomplish.

Racism is outrageous, abhorrent, unfair and obscene.  It is no less so when practiced by the state. "Equal Protection" means the same underwriting rules apply to everyone - not differently based on skin color.  That, Mr. McCarty, would be "Unequal Protection."

Don't forget what well-meaning
liberals with the same agenda as
Kevin McCarty have done for us recently:

A timely and on-point reminder: What happened when, in order to be "fair," credit scores were ignored in the housing market so that more minorities could purchase homes?

Utter disaster.

Well-meaning but naive politicians found a way to inject a feel-good, liberal political agenda into mortgage underwriting and the result was ground zero for the economic melt-down in which this country now finds itself.

Please - let’s learn from our mistakes!