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From the intro: what are credit scores used for?
The listed answers are: u/w criterion, segmentation, assignment to tiers
Are the second and third redundant and should one be 'rating factor' or something similar? Or am I misunderstanding this.
I see now that I listed a different answer in the BattleCard versus the wiki, so I need to fix that. In the wiki, I listed the uses as;
First, you might decide whether or not to accept the risk based on credit, although this is often not legally permitted. Then you might assign the driver to tier, which could be standard (low & medium-risk drivers) or non-standard (high-risk drivers.) Once they're in a tier, you could then use their credit score as part of the rating algorithm for that tier.
It's one of those questions that doesn't necessarily have a single precisely-worded answer. It's just the idea of segmentation that's important, as Kucera says at the bottom of page 1 and the top of page 2.
I got distracted by the wrong thing and didn't ask my question clearly.
Isn't 'assignment to tiers' just a specific example of segmentation? I guess I'm worried that this is the kind of thing where you'd get half credit if asked for two uses and there'd be a snarky note in the examiner's report about answers that mean the same thing.
Yes, that's a valid concern. If they ask for 2 reasons, you could put the U/W criterion by itself, then put assignment to tier, with rating variable in parentheses. That way, you cover everything but still only use 2 bullet points. If they ask for 3 bullet points, then that trick won't work.
My advice here is that this issue at worst would amount to 0.25 points and it's impossible to predict how the examiner's will grade. I don't event think it's a likely question since it hasn't been asked before. I just thought it was a good thing to know. I get the sense that you've thought about this enough so that if it comes up, you'll get the MQC score and probably more.
Sorry, now I'm the one who got distracted. I went back and saw that you were asking about "segmentation" being the umbrella for "assignment to tier". Yes, I suppose it is. Segmentation is a blanket term that probably subsumes both the "rating variable" answer and the "assignment to tier" answer.
It's all a bit of a word game. I cannot provide a definite answer other than to look at the bottom of page 3 to the top of page 4 in the Kucera reading, which I'm sure you probably already did.
Just a random thought - like Casey, when I hear "assignment to tier", I think of its use as a rating variable (many companies actually even call the combination of insurance score and certain other characteristics "tier", at least in the US), which is, yes, segmentation. However, I think we could word Graham's "assignment to tier" in a way that might make a big enough distinction to earn full credit if 3 bullets were required.
For example, what if you said:
(1) U/W criterion
(2) assignment to standard vs. non-standard book of business
(3) rating variable for segmentation
That said, not all companies will have a non-standard book, it depends on their participation in the mandatory pools and how they actually handle the risk, but just because (2) won't apply to all companies shouldn't disqualify it as an answer, I'd think?
We do have the case where (2) may now fall into a blanket of (1) instead, but I think a distinction could be argued - U/W: whether to accept/reject, assignment: which rating program applies, rating variable: determination of a specific rating factor.
Thoughts? Getting a bit into the weeds, and to Graham's point, not a high point value distinction, but nevertheless a good thought exercise!
One thing I can say is that if you explain your reasoning, they're more likely to accept your answer even if it's a little different from the official answer. If you specifically say:
then that's more likely to receive points than saying just one or the other. But at this point, you probably understand this section better than the question-writers anyway!