battle cards seem to be contradicting each other

1 - battle card "(T/F) in an economic downturn, a shift to lower credit scores causes higher premiums for everyone"
answer "FALSE - increase can be reversed by reducing base rates in proportion to the shift in credit scores"
&
2 - battle card "(T/F) in an economic downturn, a shift in credit scores disrupts relativities & causes incorrect individual premiums"
answer "FALSE: - relativities are reviewed regularly and are adjusted accordingly based on up-to-date loss costs"

vs
3 - the next battle card "regarding credit scores, what impact would an economic downturn have on (i) insureds (ii) insurers (iii) regulators"
answer for part ii"
" - increase in aggregate premium (if average credit score decreased)
- changes in relativities (due to shifts in individual credit scores)"

so wouldn't the answer to the top battle cards 1 & 2 be:

1 - TRUE unless an off-balance factor is applied to keep aggregate premiums stable.

2 - TRUE - unless credit scores aren't used

or TRUE until the relativities are reviewed and adjusted for actual lost-costs?

Comments

  • I think for these 3 BattleCards, it's semantics how you phrase the answers to them, and I also don't think the source text and the examiner's report is on a mathematically firm foundation in terms of logic so there's leeway in the interpretation.

    Your safest course of action here is to qualify any answer (as you did in your original post) so that the grader sees that you understand the concepts even if it doesn't exactly match the official answer.

    So, to address your specific questions:

    I see what you mean for the first BattleCard (BattleCard 13 in the Full BattleQuiz.) I think you are saying essentially the same thing as I am but the reading assumes that an off-balance factor would always be applied so it isn't true that rates would increase for everyone given an uniform across-the-board decrease in credit scores for everyone. See the excerpt from the source text below:

    For the second BattleCard (BattleCard 14 in the Full BattleQuiz) what you're saying is correct, but I was assuming by the way the question was phrased that credit scores ARE used otherwise the question is moot. (If the insurer doesn't use credit scores in the first place then of course a change in credit scores won't have any direct effect.) Here's the relevant paragraph of the source text:

    For the third BattleCard (BattleCard 15 in the Full BattleQuiz) the parenthetical statement is that the AVERAGE credit score decreased, so I read that to mean something potentially more than just a uniform across-the-board decrease that could be reversed by an off-balance factor. A premium increase for everyone isn't the same thing as an aggregate increase for the insurer. An increase in aggregate premium could happen even after an off-balance factor is applied to remove the "across-the-board" effect because some peoples' credit scores may have deteriorated much more than others'. For the part about relativities, if relativities are updated regularly, all insured's should still have CORRECT relativites, but their relativities still could (and probably did) change.

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