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Carriers Release Insurance Scoring Study at NAIC Meeting

A study on insurance scoring, conducted on behalf of four major carrier associations, was released during the summer meeting of the National Association of Insurance...
June 24, 2003

A study on insurance scoring, conducted on behalf of four major carrier associations, was released during the summer meeting of the National Association of Insurance Commissioners (NAIC) now underway in New York City. PIA is attending the NAIC sessions. The study concludes there is a correlation between a consumer's credit-based insurance score and that consumer's propensity for auto insurance loss.

The study was conducted by EPIC Actuaries, LLC on behalf of the Alliance of American Insurers (The Alliance), the American Insurance Association (AIA), the National Association of Independent Insurers (NAII) and the National Association of Mutual Insurance Companies (NAMIC). The survey was based on a countrywide sample of nearly 2.7 million automobiles.

At the NAIC Meetings: Although the working group charged with considering insurance scoring issues cancelled its session, the issue was still a major topic of discussion. The issue first reared its head during the Consumer Liaison meeting, at which one of the consumer advocates berated the commissioners for what the advocate perceived as foot-dragging by the NAIC, resulting in the National Council of Insurance Legislators (NCOIL) taking the lead with its "pro-industry" legislative model that has been adopted by 12 states so far this year. Insurance scoring came up again during the Industry Liaison meeting, this time with the report from actuaries for the commissioners to consider.

The report is considered the largest and most comprehensive study ever undertaken on the correlation between credit history and insurance risk. In introductory remarks to the NAIC commissioners, an AIA spokesperson stated that the study "irrefutably" shows that a consumer's credit-based insurance score is directly connected to that consumer's propensity for auto insurance loss. Indeed, insurance scores are consistently among the most important rating variables used by insurers today, the study found.

According to a press release jointly issued today by the four sponsoring organizations, the study's major findings were:

  1. Insurance scores were found to be among the three most important risk factors for each of the six types of coverage included in the study, based on a statistical measure of the relative impact of the various risk factors on insurance consumers. (Lines included in the study were: bodily injury liability, property damage liability, personal injury protection or pip, medical payments, comprehensive and collision.)
  2. The propensity of loss is significantly different from one insurance score group to the next, and insurance scores are highly correlated with the propensity for loss. As a general rule, the higher the insurance score, the lower the propensity for loss for each automobile insurance coverage (such as liability, collision, and comprehensive).
  3. After fully accounting for all overlap and relationship with other risk factors, insurance scores are significantly related to loss propensity and increase the accuracy of the risk assessment process.

What It Means to Agents: Insurance scoring continues to be a hotly debated issue in various state legislatures going into their 2004 sessions. The PIA National Regulatory Affairs Committee is coordinating a session with PIA of Wisconsin that will focus specifically on what agents need to know about the use of credit based insurance scoring. The PIA session will be held September 5 in Milwaukee, Wisconsin in conjunction with the fall PIA National Board and Committee meetings. This session is being offered as a free CE class to members of PIA in Wisconsin and we are also working with other states to secure CE filing. For additional information, please contact Ellen Sanders at (703) 518-1363.