Kucera / McCarty

Question 1

Kucera standpoint

Answer 1

Credit-based scores help insurers subdivide risks; not using will redistribute charges, not lower overall premium

Question 2

Economic crisis effects on credit scores

Answer 2

Tightening of credit markets, increasing unemployment, decreasing value of assets

Question 3

Insurance score

Answer 3

Numerical score assigned to risk based on risk’s underlying characteristics; provides relative measure of expected cost of risk

Question 4

Credit-based insurance score

Answer 4

Uses items found in typical credit report; developed models based on these items

Question 5

Positive outcomes using credit-based score

Answer 5

Able to write more risks
Strong correlation between score and expected costs
ASOP 12 - related to expected outcomes

Question 6

Regulator concerns with use of insurance scores

Answer 6

Unjustified premium increases if insurance scores worsen; dramatic shift in scores could change current relative rates

Question 7

McCarty stance

Answer 7

Studies show use of scores are proxy for class of people; just because there is a correlation does not make them fair and valid

Question 8

Weaknesses in credit reporting system

Answer 8

~50% contained errors
Identity theft
Excessive access to credit

Question 9

Classes negatively affected by credit reports

Answer 9

Recent divorcees, recently naturalized citizens, elderly, disabled, young, certain religions

Question 10

Empirical studies in credit scores

Answer 10

Only increase in frequency, not magnitude of claims; perhaps those with higher scores less likely to file small claims; no studies suggest fraudulent claims

Question 11

Florida credit score case

Answer 11

Industry opposed limiting use; Office found to have authority to prevent use, define unfairly discriminatory

Question 12

2007 FTC Report

Answer 12

Supported predictive power of using credit score while downplaying negative impacts

Question 13

State involvement using credit scores

Answer 13

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

Question 14

Insurer use of credit scores

Answer 14

Segment based on insurance score
Determine whether or not to offer coverage
Target market segments

Question 15

Critiques of use of credit-based insurance scoring

Answer 15

Social
Data Issues
Transparency/Opacity