AAA.CrdSc Flashcards
1
Q
Define ‘credit score’
A
An insurance score using attributes found in a credit report.
2
Q
Identify 3 uses of credit scores.
A
- U/W criterion
- Rating variable
- Assignment to tiers (and/or RSPs or FARM)
3
Q
Identify 2 arguments in support
of using credit scores.
A
-
Statistically significant:
- high credit score individuals have lower claim costs
(improves segmentation and availability/affordability)
- Removing credit score will not change aggregate premium collected - Has
qualities of a good rating variable
(from Exam 5):
- easy to calculate, objective, verifiable
4
Q
Identify 2 arguments against
using credit scores.
A
-
Unfairly discriminatory:
- poor families, recent immigrants -
Privacy concerns
:
- too invasive -
Accuracy
::
- credit bureau errors or identity theft may cause inaccurate credit data - High credit-score insureds:
- often pay small claims out-of-pocket so their true costs may be understated
5
Q
Briefly describe the ‘regulators’ concerns (2) over credit score use after economic crisis.
A
- On aggregate premium:
- an unwarranted increase
(a new rating variable alone should not increase aggregate premium) - On individual premium:
- a distributional shift that doesn’t reflect true cost differences ( ex: losing your job doesn’t mean you.ll have more car accidents)
6
Q
Briefly explain the actuary response to regulators’ concerns over credit score use after economic crisis.
A
Will need to review because:
- Avg score will be different (need to offset)
- Potentially greater differentiation of credit score between PH. Need to re-evaluate algorithm & factors to see if it still makes sense