[jacques_chester]

> Actually due to competition, if it correlates to risk, all companies will literally be forced to use the magic numbers or go into an adverse selection death spiral.

To expand on this: adverse selection is where a consumer has hidden information about the cost they can inflict on a provider. Usually this is talked about in terms of insurance (especially health insurance), but risk is risk and so the principles are the same.

My recollection of what economists predict is that there are two stable equilibria that achieve Pareto efficiency. The first is that discrimination (in the general yes/no sense) is completely forbidden and risks are totally pooled. The second is that complete discrimination is possible without limitation.

The worst outcomes are all found in attempted compromises. Not only do you have the costs of whatever tradeoff you chose between pooling and discrimination being less efficient than the Pareto points, but you also introduce a great deal of dead weight due to complex regulation and oversight, plus efforts made to evade regulation and oversight. Collectively we are worse off, even if individuals think otherwise.

I don't think allowing total discrimination is a viable option in this day and age. Which means banning it wholesale and encouraging the formation of universal risk pools.