AAA.CreditScore

Question 1

Define Credit Score

Answer 1

An insurance score using attributes found in a credit report

Question 2

What are credit scores used for

Answer 2

• UW criterion
• segmentation
• assignment to tiers and/or RSPs or FARM

Question 3

Arguments for and against the use of credit score

Answer 3

• for:
  
  • credit scores is statistically significant to expected losses
  • credit won’t affect the overal rate, but will allow fair segmentation of rsiks and prevent subsidization
  • easy to calcuate, objective and verifiable
• against:
  
  • unfairly discriminatory poor families & recnet imigrants
  • privacy concerns - too invasive
  • credit information that is collected could be incorrect

Question 4

Regulator’s concerns in economic crisis

or

Need to review credit-based insurance socres after a change in economic condition

Answer 4

• an unwarranted increase in aggregate premium if the average credit score get worse
  
  • actuary’s response: apply off-balance to reverse change
• on individual premium: distributional shift that doesn’t reflect true cost differences
  
  • actuary’s response:
    
    • stop using credit score at least temporarily
    • and redo a classification analysis after econmy has stablized