1 / 18

UPDATE ON THE USE OF CREDIT INFORMATION SCORING IN PROPERTY/CASUALTY INSURANCE

Explore the evolution, legislation, and implications of credit scoring in property insurance, including underwriting restrictions and public policy considerations.

williampierce
Download Presentation

UPDATE ON THE USE OF CREDIT INFORMATION SCORING IN PROPERTY/CASUALTY INSURANCE

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. UPDATE ON THE USE OF CREDIT INFORMATION SCORINGIN PROPERTY/CASUALTY INSURANCE Presentation by D. Lee Barclay, FCAS, MAAA, ARMSenior ActuaryWashington Insurance Commissioner’s Office  CAS Spring Meeting - May 2002

  2. OUTLINE • Some history • Risk classification and public policy • 2002 legislation in Washington • Actuarial and public policy issues CAS Spring Meeting - May 2002

  3. WASHINGTON AUTO INSURANCE REFORM (1995) • Five bills proposed by Commissioner • No crisis, so bills were DOA in legislature • One bill prohibited “declination or termination” based on credit history CAS Spring Meeting - May 2002

  4. “LIFESTYLE FACTOR” BULLETINS (1995) • Lifestyle factors: credit history, employment history, home ownership • 95-4: Rating on this basis is “prima facie unfair and prohibited” • Appearance before Joint Administrative Rules Review Committee • 95-7: Submit a sound analysis or withdraw use of lifestyle factors CAS Spring Meeting - May 2002

  5. NAIC WHITE PAPER (1997) • Industry did not agree with NAIC’s failure to conclude that there is clearly a relationship between credit score and loss ratio • Tillinghast report, done for Fair, Isaac, attached as an appendix CAS Spring Meeting - May 2002

  6. MULTIVARIATE ANALYSIS REQUIREMENT (2001) • Washington Technical Assistance Advisory T 01-02 • Requires multivariate analysis to support rate changes involving tiering or credit scoring • Applies to filings received on or after March 1, 2002 CAS Spring Meeting - May 2002

  7. HOUSE BILL 2544 (2002) • Commissioner Kreidler interested in credit scoring issues • Talks with industry about what they do • Ideas for legislation • Proposal to Legislature by Insurance Commissioner, Attorney General, and Governor • Legislation also being considered in at least 24 other states CAS Spring Meeting - May 2002

  8. NAIC CREDIT SCORING WORKING GROUP (2002) • Co-chairs Washington and Oregon • Moving quickly to have a work product done by the end of 2002 • American Academy of Actuaries has offered help • Will this working group give more focus to state legislation in 2003? CAS Spring Meeting - May 2002

  9. “FINAL EXAMS” • How does credit score differ from the other factors listed? • Were you able to put on your “public policy hat”? CAS Spring Meeting - May 2002

  10. ENGROSSED SUBSTITUTE HOUSE BILL 2544 • Proposed 20% cap on rating difference abandoned • Passed House, 93-4; passed Senate, 36-11 • Underwriting requirements effective January 1, 2003 • Rating requirements effective June 30, 2003 • Attempts to keep a “level playing field” CAS Spring Meeting - May 2002

  11. APPLIES TO PERSONAL LINES • Private passenger auto • Homeowners, including mobile homeowners, renters, etc. • Dwelling property • Earthquake coverage for residence or personal property • Personal liability and theft • Personal inland marine • Mechanical breakdown insurance CAS Spring Meeting - May 2002

  12. REQUIRES WRITTEN NOTICE OF “ADVERSE ACTION” • The term is used with the same meaning as in the federal Fair Credit Reporting Act • Cancellation, denial, or non-renewal • Not charging the lowest available premium • Not offering the broadest available coverage CAS Spring Meeting - May 2002

  13. REQUIRES FILING OF MODELS • Credit scoring models must be filed, whether used for underwriting or rating • Include all attributes and factors used in calculating the insurance score • Information will be kept confidential • Information may be made public for purpose of enforcement actions CAS Spring Meeting - May 2002

  14. RESTRICTS UNDERWRITING • Cannot use credit history or insurance score in whole or in part to cancel or non-renew • Cannot deny coverage based on credit history or insurance score alone CAS Spring Meeting - May 2002

  15. RESTRICTS SCORING MODELS • Cannot use number of inquiries • Cannot use medical collection accounts • Cannot use initial purchase or finance of vehicle or house • Cannot use consumer’s use of particular types of credit cards • Cannot use total available line of credit CAS Spring Meeting - May 2002

  16. OTHER PROVISIONS • Cannot use no-hit or no-score “unless the insurer has filed actuarial data segmented by demographic factors in a manner prescribed by the commissioner that demonstrates compliance with RCW 48.19.020” • Underwriting and rating decisions based on disputed credit information that is resolved in the consumer’s favor must be undone (reissue or rerate) CAS Spring Meeting - May 2002

  17. IMPLICATIONS • Modelers will each have a model unique to Washington • Models must be filed in Washington • Rates must be revised to be based on new models • Rates must be based on multivariate analysis CAS Spring Meeting - May 2002

  18. ACTUARIAL AND PUBLIC POLICY ISSUES • Importance of multivariate analysis (see examples in handout) • Myth of “causality” (good student discount?) • “Disparate impact” (rating by territory?) • Why don’t arguments focus on consistent criteria for risk classification? CAS Spring Meeting - May 2002

More Related