Impact of using Credit Score

AliceAlice
in Kucera.Credit

You mentioned "The use of credit scores can have an impact on the aggregate premium a company collects" then later "removing credit scores won't change aggregate premium". Are these two contradicting each other?

Also, "a credit score is an example of an insurance score that uses attributes found in a credit report". so credit score is same as insurance score in this reading?

thanks

Comments

  • grahamgraham

    Those statements do seem contradictory but here's what's going on:

    • If credit score is introduced as a rating variable, it's possible for the aggregate premium to go up, down, or stay the same, as it would when any change to the rating algorithm is made.
    • If the aggregate premium does go up or down, the actuary may apply an off-balance factor to force the aggregate premium to stay the same.

    So that trick is whether or not an off-balance is applied at any step in the process. To clarify the wiki, I added a phrase to the Removal reason in support of the use of credit scores so that it now reads as follows:

    • removing credit scores won't change aggregate premium, provided an off-balance is applied

    Regarding your second question, I'd be careful about equating the terms credit score and insurance score. It's true that in this reading the only insurance score they discuss is the credit score, but I would still make a distinction between the two just for clarity.

  • mec06emec06e

    along the same topic of agg premium, I don't see how the removal of Credit Score as a rating variable can be an argument for it.
    It seems more like a side note, since it's not really a reason supporting the use of Credit Score as a rating variable

  • mec06emec06e

    after reading the section below I think I understand - it's possible to temporarily remove them when it is warranted (like economic downturn)

  • grahamgraham

    Ok, so we're good? Let me know if you're not.

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