The insurance analogy

[RuthWeiner@AOL.COM]

The excellent insurance analogy has some interesting aspects.  The insurance industry has one goal -- saving (and making) money, so they are going to use any useful and applicable correlation as long as, and ONLY as long as, that correlation is useful and applicable (for example, I can remember when most auto insurance rates dropped for people older than 26).   If and when credit rating stops correlating with insurance claims, you can bet that the industry will stop using it.


Moreover, the insurance industry (1) apparently has data to support ithe correlation, and (2) does not try to imply causality.  If the data on credit rating were as fraught with uncertainty as the data on radon, I doubt the insurance industry would use it.



Ruth Weiner, Ph. D.

ruthweiner@aol.com