Credit-Based Insurance Scores Flashcards
insurance industry challenges to FL legislation limiting use of credit-based insurance scores (4)
- state does not have authority to prevent use of credit-based scoring (judge said it does)
- state does not have authority to define “unfairly discriminatory” (judge said it does)
- insurers do not have data to demonstrate impact on protected classes (judge said this is irrelevant)
- definition of “disproportionate impact” is too vague (judge agreed; it will be revised)
possible regulatory actions around credit-based insurance scores (5)
- regulator access to scoring models
- notify customers about use
- restrict decisions based solely on credit history information
- ban use when rating existing customers
- prohibit use to cancel, non-renew, or increase rates
classes that credit reports have disproportionate impact on (6)
- young individuals with no credit history
- elderly
- certain religions
- disabled
- recently naturalized citizens
- recent divorcees
define credit-based insurance score
a numerical score that incorporates attributes from an individual’s credit report
insurer uses for credit-based insurance scores (2)
- underwriting: whether to accept a risk
* risk segmentation: directly as a rating factor or tier placement
argument in favor of using credit-based insurance scores
they help insurers segment risks to determine appropriate rates because there is a strong correlation with expected costs
argument against using credit-based insurance scores
there is a disparate impact on low-income and protected classes, so costs outweigh benefits of increased pricing sophistication