Actuaries Have Special Role When Explaining Credit Scores and Losses
National News • November 16, 2007
By explaining why there is an association between credit scores and insurance losses, insurers and actuaries can promote a better understanding of why credit scores are a useful underwriting tool, ...
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Subject: credit scoring: fraud and loss ratios
Posted On: November 19, 2007, 10:52 am CST
Posted By: Kent
Comment:
I've read a lot of good comments in this discussion. We have not touched on the relationship of credit scores and insurance fraud.
Credit scoring works but, we must be able to convey this to our customers. I bring to their attention several facts that makes sense to them. First, the use of credit scores with investigating fraudulent claims. I bring to their attention that in my 28 years as an agent that I have had about a dozen customers convicted of insurance fraud. Three of burning their homes and the remainder being various auto claims. Mind you - these were only the ones convicted as many more were suspects. In each and every case, the first indication of fraud to the investigators was credit scores. Their credit scores were so bad that those insureds may commit insurance fraud to get money from their polices. The economic impact of those three house claims alone would have been greater than the cost to replace 100 average roofs from a hail storm. This puts it in terms that the customer can relate too. After hearing this explanation most customers tend to be more open minded about accepting credit as a cost factor in their insurance premium. Not convinced but, at least more open minded to hear more.
Second, my customers with very good credit scores tend to maintain the homes and autos better - particuarly their homes. I have a balanced racially mixed business of whites, hispanics, blacks and asians. Many of my customers with the best credit scores live in the more economically depressed areas of town - Dallas/FW metro-plex. They may live there but, their homes are very well kept, they pay their premiums on time and almost never file a claim.
Bill mentioned the problem that I run into - different carriers using different credit scoring models. Do we continue to allow carriers to use different scoring models or should only one model be approved for carriers to use? The different credit scoring models is what makes our customers angry and push legislators to ban credit scoring. All carriers use the same loss records but, are allowed to weigh them differently. Actuaries may need to agree on one model then, allow carriers to weigh them differently. I think this may help gain the support of many legislative representatives.
If we want to continue to use credit scoring then, we must be able to make a good case with our customers. If customers understand the accuracy of credit scoring they won't be pressing their local legislators to pass laws banning its use.
Subject: credit scoring: fraud and loss ratios
Credit scoring works but, we must be able to convey this to our customers. I bring to their attention several facts that makes sense to them. First, the use of credit scores with investigating fraudulent claims. I bring to their attention that in my 28 years as an agent that I have had about a dozen customers convicted of insurance fraud. Three of burning their homes and the remainder being various auto claims. Mind you - these were only the ones convicted as many more were suspects. In each and every case, the first indication of fraud to the investigators was credit scores. Their credit scores were so bad that those insureds may commit insurance fraud to get money from their polices. The economic impact of those three house claims alone would have been greater than the cost to replace 100 average roofs from a hail storm. This puts it in terms that the customer can relate too. After hearing this explanation most customers tend to be more open minded about accepting credit as a cost factor in their insurance premium. Not convinced but, at least more open minded to hear more.
Second, my customers with very good credit scores tend to maintain the homes and autos better - particuarly their homes. I have a balanced racially mixed business of whites, hispanics, blacks and asians. Many of my customers with the best credit scores live in the more economically depressed areas of town - Dallas/FW metro-plex. They may live there but, their homes are very well kept, they pay their premiums on time and almost never file a claim.
Bill mentioned the problem that I run into - different carriers using different credit scoring models. Do we continue to allow carriers to use different scoring models or should only one model be approved for carriers to use? The different credit scoring models is what makes our customers angry and push legislators to ban credit scoring. All carriers use the same loss records but, are allowed to weigh them differently. Actuaries may need to agree on one model then, allow carriers to weigh them differently. I think this may help gain the support of many legislative representatives.
If we want to continue to use credit scoring then, we must be able to make a good case with our customers. If customers understand the accuracy of credit scoring they won't be pressing their local legislators to pass laws banning its use.