Kucera / McCarty Flashcards
Kucera standpoint
Credit-based scores help insurers subdivide risks; not using will redistribute charges, not lower overall premium
Economic crisis effects on credit scores
Tightening of credit markets, increasing unemployment, decreasing value of assets
Insurance score
Numerical score assigned to risk based on risk’s underlying characteristics; provides relative measure of expected cost of risk
Credit-based insurance score
Uses items found in typical credit report; developed models based on these items
Positive outcomes using credit-based score
Able to write more risks
Strong correlation between score and expected costs
ASOP 12 - related to expected outcomes
Regulator concerns with use of insurance scores
Unjustified premium increases if insurance scores worsen; dramatic shift in scores could change current relative rates
McCarty stance
Studies show use of scores are proxy for class of people; just because there is a correlation does not make them fair and valid
Weaknesses in credit reporting system
~50% contained errors
Identity theft
Excessive access to credit
Classes negatively affected by credit reports
Recent divorcees, recently naturalized citizens, elderly, disabled, young, certain religions
Empirical studies in credit scores
Only increase in frequency, not magnitude of claims; perhaps those with higher scores less likely to file small claims; no studies suggest fraudulent claims
Florida credit score case
Industry opposed limiting use; Office found to have authority to prevent use, define unfairly discriminatory
2007 FTC Report
Supported predictive power of using credit score while downplaying negative impacts
State involvement using credit scores
48 states limit use; legal provisions regarding notification and transparency of credit scoring; some have disallowed as sole basis in decisions, prohibiting for use to cancel/non-renew/increase rates
Insurer use of credit scores
Segment based on insurance score
Determine whether or not to offer coverage
Target market segments
Critiques of use of credit-based insurance scoring
Social
Data Issues
Transparency/Opacity
