Could a Bank Deny Your Loan Based on Your Facebook Friends?

Yup. It's not even young men who are screwed over. I'm a 31 year old man with a flawless driving record(zero accidents, zero tickets), having driven over 400k miles over the past 14 years, and yet I still pay more in insurance than my 19 year old female cousin who already has rear ended a person in the 2 years she has been driving.

Progressive does, their snapshot measures how hard you brake.

Allstate and State Farm do too. I partipate in the Allstate one currently. I can cut my bill by 30%. However, it is next to impossible to get the max. You get 10% just for enrolling and I'm on track for another 10%. The interesting part is this is all based on off the app on my phone. I do not connect anything to my OBD.

I argue that they can eliminate risk. What happens is the top 10% of the people who cost insurance get the boot.

Now, unless they choose just to not pay out, they can still reduce their risk levels below threshold of the industry. That's what actuarial science is founded on.

You can diversify risk which is almost the same thing. The whole point of insurance is that each person has x% probability of dying, so they pay x% * the sum assured, and, as the pool of insured gets large enough, there is enough cheese in the fridge.

Yes, the pool is not always large enough, so you can throw it into a reinsurer from the insurance company. Yes, the reinsurance pool isn't always large enough, so you can retrocede to a few other reinsurers for diversification.

That pool isn't aways large enough, so you can securitise away the tail risks and aggregate loss risks into a cat bond, or a pandemic bond, or a longevity swap, or something fun.

These will then in turn be bought up by pension companies, in order to diversify against their market risks, and the needle returns to the start of the song, and we all sing along like before.

When I drive slower and quit smoking cigarettes, I very much am reducing my risk of getting into a car accident or dying from lung cancer.

My understanding is you have access to total monthly credit usage vs. credit availability, not what I'm spending money on. I would think there's information to be gleaned from whether the distribution of spending across categories looks like a deliberate household budget, whether purchases include luxury items, etc. that would let you spot people likely to bury themselves in credit card debt before they actually do so. Just as people's social networks might tell you about their attitudes towards money when influenced by friends.

Pretty much all countries have the no claim bonus for driving. (It's in the earliest actuarial exams.)

You can clock up several years of no claims bonuses, and the discount increases with each year.

Interestingly, the no claims bonus can be insured. Now, generally only risk averse people will insure their no claims bonus - and these people also tend to drive more risk aversely and hence have less accidents (or perhaps less likely to make claims - who the hell knows).

So, the very fact that somebody wanted to insure their no claims bonus should in theory give them a discount on their premiums. But you cannot offer a discount for an extra feature! This means you have to dive into your generalized linear model and fiddle with a couple of parameters to make sure there is some sort of nominal charge for the insurance on the no claims bonus.

"Your demographic" is just a feature of your model though. Just because your methods are not very sophisticated, doesn't mean that others can't be upset that you arbitrarily group them by whatever rules you decided to come up with.

Insurance is a large-scale perverter of the market, because it muddies the direct relationship between the cost and the value of the service and makes the pricing all screwy. Creating this opening for pencil-pushing middlemen to profit off a service to which they provide no value is a big problem.

This is blatantly apparent in the health industry, where if you're a cash patient that knows the right magic incantations, you can get 90% of the bill waived, and if you don't know those incantations, you're forced into bankruptcy with hundreds of thousands in medical debt. The American health system is despicable and must be rectified.

Look up "redlining" for one consequence of not being able to get loans.

The next logical step is for credit agencies to bake this into your credit score.

While this particular application mentions loans, credit scores are used for a lot more things than loans. It would be interesting to live in a world where you can't get a roof over your head because your deadbeat brother has a terrible credit score.

There is also Vitality UK from Prudential, and Beam - the wifi connected toothbrush. Telematics is all the rage in risk.

I think there's a big difference between these two things.

When you use a phone to track exercise and reduce insurance premiums, that's a good thing, it encourages (or at least rewards) people who exercise and become healthier and might need less medical care.

When you use social networks to track and monitor who your friends are in order to approve you for credit, that causes a different set of rewards and incentives. It rewards you for choosing who you are willing to be friends with based on their creditworthiness. It punishes people who have associations with people with poor credit.

It essentially keeps good people down too. If you are a role model in your group of peers. If you're the guy out of your group of friends who got an education and got a steady job. If you pay your bills and don't carry debt, and you want to buy a house and have the money and responsibility to do so, you should be allowed to. When you do that, it shows those friends what you can do, and it allows you to move forward.

On the other hand, if you get an education, get a job, pay your bills, and don't carry debt, but when you go to buy a house your mortgage application is denied simply because you have some friends who are struggling on facebook, what is the impact of that? It just causes you to stop moving up. Maybe it discourages you. Maybe it makes you realize that the world doesn't really want you to be better than what your friends have become.

What the problem is has less to do with being judged by your actions, but rather being judged by the actions of those you associate with.

I went through the same thing! After 18 months on my first real job, I had zero debt (ever), no dependents, and income of three times the median for the area, and yet I was still classified as subprime.

Why? Because I'd never gotten a credit card before. Had I simply moved existing purchases onto it, and taken the same (zero) revolving debt, I would have appeared as much less risky. [1]

What's worse is that when I went to the "what's my FICO"/credit report sites, they would consistently say that my credit score should be 740, even though this never translated into any observable consequences in terms of ease of getting loans.

And what made that even worse was that there were actual critics of the subprime practices then that refused to believe this was happening, that anyone classified as subprime must have deserved it in some way, even after I offered to forward this information over!

[1] Yes, I know, I should have known to pointlessly get a credit card and switch which buckets expenses go in, which is somehow informative about my credit risk.

Aren't age and sex federally protected attributes? How are insurance companies discriminating against people in this manner?

ACA also prohibits charging differently on sex, as do many state laws.

We could boycott networks & technologies that infringe upon our ability to exist as private individuals and to self-determine: Don't use the wifi toothbrush or the Fitbit, don't use Facebook or Twitter, stay connected with friends using email or (!) the postal service. Use less technology and gain more freedom.

Alternately, market collusion and the unquenchable desire of people to sell their information in exchange for Javascript-enabled friendships will force us into a grim future where the mistakes of the people we love & an assortment of bureaucratically-mandated sensors impede our pursuit of happiness.

Perhaps it's time to draw our lines in the sand.

>It's going to take further generational change to adapt to those new possibilities and decide how -- and even if -- we should use that technology.

The problem is for most things we're not doing any deciding. We just invent new technology, and then we have to live with its consequences, while never stopping and thinking about it or actually and democratically deciding if we should use it and how we should restrict it.

All that with the sole exception of when there's comercial interests at stake. Then we go out of our way to prevent the technology from messing with them, e.g. adding DRM to help with copyright. But for everything that can mess up the lives of millions of people (be it because of lifestyle changes, environmental damage, invasion of privacy, etc) we either never get to decide and restrict consequences, or we do very little of it.

> Would it not end up penalizing the exceptions?

Yup, but so too do credit scores in general. If Harry was unlucky, lost his job and missed a few credit-card payments, then his credit card will suffer regardless of whether he is now actually likely to default; the trouble is that he is the type of person who will default.

It's unfortunate, but that's what happens whenever one tries to categorize people. And it's unavoidable, even with extensive work in-person, as anyone who's ever been deeply disappointed or pleasantly surprised by a family member or close friend can tell. If Pete couldn't tell that his brother would steal his car, can he really be certain that a stranger won't default on his loan? All any of us can do is play the probabilities.

Yes it would penalize the exceptions. The banks do not care about that. They care about measuring the effects of peers on typical people.

This would reduce exceptions.