How do agents handle credit scoring?

[sankykid]

When an agent is quoting a personal lines policy how is credit scoring handled? Is a hard score ordered from each carrier? Does the agent ask the client what they think their score is and issue a quote based on that estimate? Does a comparative rater (e.g. FSC) pull a hard score and use that for every company in the rater? Is there another method?

Any feedback is much appreciated!

[Brenda H]

Now days, most companies pull an insurance score in the background after information is input into their system. Used to, we had to pull one and input the information ourselves. As this is no longer done, agents are not privy to any information as to what the insurance score is. I don't know if a comparative rater would do that same thing, but I would imange so, since it is running off each company's rating platform.

[mica.cooper]

If you use a comparative rater, the bureaus force the rater to pull as separate score for each company, or if realtime, or scraping (UGGH! You know who you are), the company runs it in the background.

Brenda H is wrong in that companies still do force agents to sign up with companies like Choicepoint, to pull a score or code (usually green, yellow, red, or A,B,C,D,E,F[lunk]). In this case, the agent can enter the score across multiple companies in the rater. This is not want an agent wants as now there is a liability exposure for having this information, and having to have written and verified policies on how to deal with it.

There is a third option, and that is when the rater is a portal rater. The rater IS the company system and can run the rates, underwriting, credit, claims, etc in the background, and in a comparative fashion. This is 'Better Than Realtime' as it is done there and not sent off to be rated. There is only one company that does this, and if you don't have it now, then you can't get it, as its by invitation only because its free for agents and the companies pay all charges.

[darnovak]

In New York, agents do not credit score - our carriers do what they call 'credit profiling' within their rating programs. Each carrier has a custom 'proprietary' method because for the same exact risk, one carrier hates it (tiers in the high premium range) and another loves it (tiers in the low premium range). There are probably asomething like 50 factors (data fields) involved in the process of quoting/rating/underwriting a personal auto with one driver operating one vehicle. Some carriers tier in the high premium range for things like 'substandard prior carrier', 'rents instead of owns home', 'current limits are low', etc. Oh yes, don't forget the creme de la creme of underwriting magic - credit profiling! This is the "Magic Bullet' carriers have been drooling over for for decades and now they have it and each carrier's formulas for utilizing credit data is secret. How significant is the 'credit profile' when a system is selecting the rating tier for a personal auto risk? It has an extreme amount of influence - unlike driving record and claims history which have been somewhat relegated to the dustbin of rating/underwriting because they are of very little consequence when determining which drivers are likely to file a claim. To assuage insurance departments and the 'old school' agents, these bits of data are still included in the process although their influence is miniscule at best. We have nine auto carriers on our compartive rater and all include 'credit profiling'. Seven provide 'real time' connect in the rater and the quote from their website is 'spot on'. My agency runs the DMV extracts in the rater and gives the prospect as accurate a quote as possible - some of our carriers charge us for these DMV extracts if we don't write a certain % of the DMV extracts we order from the rater. That's the cost of dpoing business and providing an accurate quote the first time. Yes, we had to sign on with Choicepoint as all of our carriers utilize Choicepoint for DMV and CLUE data retrieval. I recently discovered that some carriers request a DMV extract from Choicepoint and receive the most recent extract for that driver pulled by Choicepoint (for any carrier they service) that can be up to 90 days old (STALE). As long as this is disclosed, I have no problem with it. Alas, I had to find out by asking a carrier why their quote didn't include the defensive driving course completion discount we had indicated. The DMV extract that they were supplied was stale and the course notation had not been added as of 54 days ago (the date of the extract they paid for). You learn something every day in this business! Sometimes you learn many things in a day.

[mica.cooper]

I have to say,
Griping and moaning are not constructive. First of all, the NY DOI has oversight of such models and they are NOT at the whim of some cigar smoking fat cat idiot just looking to fuel a 200' yacht. Next, it is not credit profiling but insurance scoring. FYI, insurance scoring is a proven factor (many times over) in predicting future claims. Insurance rates have been consistent and cheap for risks in the preferred tiers. Why? Because higher risk risks are charged more, AS IT SHOULD BE.

As to the models themselves, variety is good, very good. If one insurer screws up and another has a better model, guess what? They can offer lower rates and that is good for the marketplace.

I hope we never write non-standard risks at standard rates... but guess what, we can see that trend in the health care market. I would bet money that you can show a correlation between insurance score and health insurance claims.

[darnovak]

OK "micacooper", I have two simple requests for you. 1) Call up your auto insurance carrier and ask them for your 'insurance score' and how it was arrived at. 2) Please cite your source of data proving 'insurance scoring is a factor (many times over)...in predicting future claims'. It is only a (major) factor in rating policies so far. Where's the true research carried out for many years by collecting all kinds of data from thousands (or millions) of subjects?
I predict your insurance carrier will not reveal your 'insurance score'. If they do, they will say you are an '8' or an 'hh' or some such nonsense. As to revealing how they arrived at it, don't make me laugh. You can find out how a credit bureau arrives at your score. No 'freedom of information act' applicable here to our auto insurance carriers. I have yet to see a reliable source that reveals a competently researched connection between a 'credit score' as developed by one of the credit bureaus and the propensity for filing a claim under any type of insurance policy. The burden of proof is not on me to 'prove' the use of credit scoring (or profiling as used by insurance carriers) does not work. The burden is on 'those who say it does' to prove it. Where is the proof? names, dates, places, etc. "Because everybody says so and everybody agrees..." is not proof. That definition doesn't cut it for people who can think for themselves. I didn't see any 'gripes' or 'moans' in any posts yet - just misinformation. Let me know when you get your 'insurance score' and the formula for determining it - I am holding my breath.

[mica.cooper]

Well,
To answer you, for #1, I can and have pulled the credit model from the dept's of Insurance many times AND the companies have provided all rating factor, underwriting, and policy form materials as well as credit model to me. I've done this for State Farm, Farmers (my auto company), Progressive, Allstate, CNA, you name it, I have had it in my hands.

For #2, there have been extensive studies as to the effectiveness of insurance scoring. The leading study was by the Texas dept of Insurance. This study involves a huge number of insureds over time and proves beyond a shadow of a doubt, insurance scoring works.

You can find the landmark study here:
http://www.tdi.state.tx.us/reports/credit3.html

From the Insurance Journal itself: PCI: TDI Study Finds Use of Credit is Fair and Accurate
http://www.insurancejournal.com/news/so ... /50511.htm

FYI, I design tiering-insurance score models for insurance companies, so I understand it very well. I know that a proper model can reduce claims and improve underwriting profit significantly, allowing some companies to keep rates low, while others go through the roof. (Progressive is King here)

PS. For my property company, I actually designed the tiering-insurance score model for them.

[coyoteslover]

For real, what difference does it matter? You cant change it,

I have a couple companies that dont pull credit, o then just use them. if credit is part o that carriers system, then you must abid by what they want.

[KPIA]

Your turn, darnovak, rebuttal?

BTW, I predict this topic is gonna get really heated in the next couple of years as many peoples' scores have dropped in the wake of the economic downturn.

[mica.cooper]

KPIA,

I would agree with that. Kansas just passed a significant bill. It allows companies to NOT re-run insurance scores at renewal. I can tell you that companies do not want to punish people for the economy. They do not want to re-run scores at every renewal.

Kansas Lawmakers Add Exemptions to Insurance Scoring Law
http://www.insurancejournal.com/news/mi ... 108865.htm

Most companies are moving to periodic (3yrs) re-runs. In between, they only run it again if an exceptional situation occurs such as a loss, addition of a new named insured, etc.

[KPIA]

Here in CA, companies are forbidden from using credit to determine eligibility or rates. They can use it to qualify a risk for payment plan, but very few, if any, still do that (I am speaking personal lines only here).

My problem with it is implementation. Without the ability to seamlessly integrate it into the quoting process, it is too awkward and cumbersome. But, it's not an issue for me until I open up in another state.

[darnovak]

I asked Metlife for my credit profile and how they arrived at it. "It is proprietary" I was told and would not be furnished to me. This is New York so I am not speaking for any other states.
So let's say my current credit score with Experian is 740. Before my next policy renewal, it drops to 550. Does my carrier Metlife have the opportunity to then re-tier my policy because I am a much greater risk? They can do it if I have claims. They can do it if I have convictions. if credit is such a great determinant of loss potential, why can't they re-tier me next year? I will examine the sitre and get back to you all. This is the first time anyone has actually provided a site. Thank you.

[mica.cooper]

If, when your quotation is run an adverse action has taken place, the insurance company is required to provide the source of the data for the action, such as Equifax, and contact info. You then have the opportunity to get any issues resolved and ask for a re-run of the quotation.

If, you have insurance, and your score changes for the positive, you have the right to ask the insurer to re-quote with the improved information. Something that is quite common is for a bankruptcy to drop off after say 7 years, or a claim after 5 years, and that can be significant. Of course, if it changes for the negative, you hope and pray they don't re-run it, and chances are, they won't and don't want to.

Some interesting things to note, is that your score can contain data for up to 20 YEARS if the state allows it. For instance, one company, *ro********* used to have it that you got +1 for every month you had a checking or savings acount open. For ten years, that would have added 120 points to the score, wahoo!

[darnovak]

In NY we are advised by our carriers that they do not 'downgrade' renewals if the credit score/profile worsens. My question is "Why not?" If 'credit' is the magic bullet of underwriting, why not charge more (re-tier) at renewal when the insured's credit goes south? Carriers do so when convictions, collisions, claims, (and almost every other underwriting factor changes) occur prior to renewal (always have and probably always will), but why is a worsening of credit score/profile the 'sacred cow' that cannot be touched? If it is 'that good' of a proof of loss potentiality, why aren't auto insurance insureds in NY being re-tiered when thir score/profile worsens? Does anyone out there have an answer? Possibly there was another survey done which shows that if you start with a great credit score that goes south, you are still a good risk. I can't wait to examine that study also. Thanks for any info from the readers. regards, Dar Novak

[mica.cooper]

I know of no rule of such in NY. It may be that the insurers you are referring to just don't want to handle adverse notifications on renewal. I know that the renewal practice is quite prevalent. Insurors check insurance score, MVR, protection class, estimated valuations, etc at renewal but may do it only on an exception basis. An exception basis is triggered by something such as a claim, change of coverage, time period, or a specific coverage or combination of items such as wood roof, wood heat, and log home...YIKES!