NAIC Credit

  1. Definition of What Constitutes a Credit-Based Insurance Score
    • Numerical score assigned to an insurance risk based on attributes found in a credit report, which is used for pricing and UW
    • Examples of attributes: # of inquiries into opening new accounts, accounts >= 30 days past due
  2. 2 uses of credit-based insurance scores
    • UW: to determine whether an insured qualifies to be written
    • Pricing: Segment risks into different groups with similar expected costs for risk classification
  3. Arguments against credit scores
    • Affected by eco downturn
    • Causal effect difficult to understand for insured
    • Discriminate against certain groups (e.g. recent immigrants)
    • Potential errors in reports
    • Can be seen as invasion of privacy
    • Can be affected by extraordinary life event
  4. Arguments for credit scores
    • Credit scores and expected costs are correlated -> predictive and differentiate between risks
    • Used to distribute premium fairly to avoid subsidization, not to determine average rate / total premium
    • Easily obtained
    • Objective; can’t be manipulated
    • Better pricing -> increase availability
  5. Review of Credit-Based Insurance Scores after change in Eco conditions on p.h. Premiums
    1. Impact on agg premium
      • may cause everyone's score to worsen (distributional shift) leading to increase in avg rates
      • but actuary would adjust accordingly so avg rate is not impacted by this as credit score is used to differentiate not to determine overall premium need
    2. Impact on individuals’ premium
      • review if any changes to relationship between credit score groups (if so, differentials would change)
      • part of Actuary's job to regularly review differentials for all variables to make sure they are actuarially sound regardless of the circumstances
Card Set
NAIC Credit
NAIC Public Hearing on Credit-Based Insurance Scores