credit score

Question 1

Define insurance score

Answer 1

Numerical score assigned to risk based on risk characteristics

Question 2

Define credit score

Answer 2

insurance score using credit based on past due account & inquires of opening new accounts

Question 3

What are credit scores used for? (3)

Answer 3

UW

pricing

tiering

Question 4

On what levels can credit score impact premium

Answer 4

1. Aggregate (companywide) though doesn’t necessarily impact at this level

2 individual (policyholder)

Question 5

Argue in favor of using credit scores (SMOR)

Answer 5

1. Statistically significant - predicts losses
2. Manipulation –can’t be manipulated
3. Objective – based on data
4. Removal – removing doesn’t change aggregate premium (base rate offset)

Question 6

Argue against using credit scores FEED

Answer 6

1. Frequency – correlated w/ freq but not sev
2. Errors – credit report has errors
3. Economic downturn – credit score drop for losing job is unfair
4. Discriminatory – race & income

Question 7

Issues seen with credit score use after economic downturn at 1) aggregate & 2) individual premium level

Answer 7

1. avg credit score down →aggregate premium ↑
2. losing job→credit score down→drive less→ individual prem ↑

Question 8

Solutions with credit score use after economic downturn at a) aggregate & b) individual premium level

Answer 8

aggregate: base rate offset + losing job → stop using credit

indivudual: review loss ratio relativities

Question 9

T/F – economic downturn shift in credit score causes a) higher premium for all & b) incorrect individual premiums

Answer 9

aggregate: F – use base rates offset

indivudual: F – review loss ratio relativities

Question 10

Impact of economic downturn on a) insureds b) insurers c) regulators

Answer 10

a) losing job→credit score down→drive less→premium ↑
b) aggregate prem up→use base rate offset
c) consumers complain about affordability

Question 11

Ways regulator can limit credit use (3)

Answer 11

1. ban
2. only use in UW
3. only use if cause premium decrease
4. cap change in tier

Question 12

How does capping renewal rates from credit change violate CAS rating principles?

Answer 12

rate is less than true loss costs (expected future costs & risk transfer costs)

Question 13

Argue for vs against rating by gender

Answer 13

not socially acceptable to discriminate by gender

vs low risks are subsidizing high risks (rate doesn’t match loss cost)

Question 14

2 age groups & one other group disparately impacted by credit

Answer 14

1. young (less credit history)
2. old (don’t use credit)

low income (can’t use credit)