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Insurance Scores
michael glen WooD
since the day that credit-based insurance scores were
introduced in insurance rating plans, there’s been
criticism. Much of it has come from individuals or
groups claiming to represent consumer interests and asserting that they
are knowledgeable about what should be in a rating plan and how much
insurance companies should charge for policies. In my experience, many
of the criticisms seem to be based on anecdotal information or unfounded concerns. But public opinion can be swayed by incorrect data and
often is based more on emotion than on fact. This seems to be the case
with credit-based insurance scores and their use in insurance pricing.
Considering the current recession, it’s not surprising that the National Association of Insurance Commissioners (NAIC) last year decided to
investigate the effect that a faltering economy has had on credit-based
insurance scores. Among other things, there were concerns that economic hard times could increase significantly the number of people
receiving bad insurance scores. This could lead to their being charged
more for their insurance (and to insurance companies realizing greater
profits at the expense of people already suffering economic setbacks).
Not everyone agrees with that scenario. I had the privilege of testifying at the NAIC’s public hearing on credit-based insurance scores in
April 2009 and was responsible for coordinating a position paper that
was presented at the hearing. The development of the paper (available
at www.actuary.org/pdf/casualty/scores_testimony_apr09.pdf) was a
deliberate process. Significant input came from various members of the
Academy’s Automobile Insurance Subcommittee and the Property and
All Other Lines Subcommittee. After several initial drafts, we sent a version for peer review to Alice Gannon, current chief actuary at USAA and
former president of the Casualty Actuarial Society, and Chet Szczepan-ski, current chief actuary of the Donegal Insurance Group and past chief
actuary for the Pennsylvania Insurance Department. A revised version,
incorporating their feedback, underwent final policy and legal review
at the Academy. All of this was done in approximately three weeks and,
with the exception of the Academy staff, on a volunteer basis.
Almost
in their absence, those with lower expected losses will end up aying more than what is actuarially fair for their insurance coverage. By Jeff Kucera 760
