Discrimination and Profits
1 January 2007
Editor, CBS Evening News
To the Editor:
So California now prohibits car insurers from using customers' zip-codes as guides to the riskiness of insuring automobiles. Your report on this legislation (Jan. 1) contained zero critical insight. By gullibly accepting the allegation that insurers use zip-codes to "discriminate" against poor people, you unwittingly endorse the notion that insurance companies knowingly sacrifice profits in order to indulge a desire to "discriminate."
Isn't it far more plausible that zip-codes are the lowest-cost source of reliable (if not perfect) information on the riskiness of different customers? If insurers had a lower-cost way of getting more nuanced and reliable information on customers' riskiness, their lust for profit would surely propel them to use it.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Editor, CBS Evening News
To the Editor:
So California now prohibits car insurers from using customers' zip-codes as guides to the riskiness of insuring automobiles. Your report on this legislation (Jan. 1) contained zero critical insight. By gullibly accepting the allegation that insurers use zip-codes to "discriminate" against poor people, you unwittingly endorse the notion that insurance companies knowingly sacrifice profits in order to indulge a desire to "discriminate."
Isn't it far more plausible that zip-codes are the lowest-cost source of reliable (if not perfect) information on the riskiness of different customers? If insurers had a lower-cost way of getting more nuanced and reliable information on customers' riskiness, their lust for profit would surely propel them to use it.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Wednesday September 12, 2007 at 4:42pm