Credit-Based Insurance Scores

Question 1

insurance industry challenges to FL legislation limiting use of credit-based insurance scores (4)

Answer 1

• state does not have authority to prevent use of credit-based scoring (judge said it does)
• state does not have authority to define “unfairly discriminatory” (judge said it does)
• insurers do not have data to demonstrate impact on protected classes (judge said this is irrelevant)
• definition of “disproportionate impact” is too vague (judge agreed; it will be revised)

Question 2

possible regulatory actions around credit-based insurance scores (5)

Answer 2

• regulator access to scoring models
• notify customers about use
• restrict decisions based solely on credit history information
• ban use when rating existing customers
• prohibit use to cancel, non-renew, or increase rates

Question 3

classes that credit reports have disproportionate impact on (6)

Answer 3

• young individuals with no credit history
• elderly
• certain religions
• disabled
• recently naturalized citizens
• recent divorcees

Question 4

define credit-based insurance score

Answer 4

a numerical score that incorporates attributes from an individual’s credit report

Question 5

insurer uses for credit-based insurance scores (2)

Answer 5

• underwriting: whether to accept a risk

* risk segmentation: directly as a rating factor or tier placement

Question 6

argument in favor of using credit-based insurance scores

Answer 6

they help insurers segment risks to determine appropriate rates because there is a strong correlation with expected costs

Question 7

argument against using credit-based insurance scores

Answer 7

there is a disparate impact on low-income and protected classes, so costs outweigh benefits of increased pricing sophistication