Difference between revisions of "McCarty.Credit"

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Representing the NAIC, McCarty presented his views on the impact of credit-based insurance scoring on the <u>availability</u> and <u>affordability</u> of insurance. This reading is closely related to [[Kucera.Credit]].
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'''Reading''': “Testimony of Kevin M. McCarty, Florida Insurance Commissioner, Florida Office of Insurance Regulation and Representing the National Association of Insurance Commissioners, Regarding: ‘The Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance,’ May 21, 2008,” Subcommittee on Oversight and Investigations of the House Committee on Financial Services, excluding Appendices 1 and 2.
  
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&nbsp;&nbsp;[https://www.battleacts6us.ca/vanillaforum6us/categories/mccarty-credit<span style="font-size: 12px; background-color: lightgrey; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 0px;">'''Forum'''</span>]
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'''Author''': McCarty, K.M.
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[https://www.battleacts6us.ca/vanillaforum6us/categories/mccarty-credit<span style="font-size: 12px; background-color: lightgrey; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 0px;">'''Forum'''</span>]
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<span style="display: inline-block; background-color: blue; color: white; font-weight: bold; text-align: center; line-height: 50px; width: 50px; height: 50px; border-radius: 50%;">VIDEO</span> &rarr;
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[https://battleacts6us.ca/video/300_Credit_Scores_McCarty_(v01).mp4 <span style="color: black; font-size: 12px; background-color: aqua; border: solid; border-width: 2px; border-radius: 10px; border-color: aqua; padding: 5px 10px 5px 10px; margin-top: 100px;">'''(4:00) &rarr; Credit Scores 2 - General Overview'''</span>] &nbsp;&nbsp;
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([[Videos |Click here for all currently available videos.]])
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{| class='wikitable' style='background-color: navajowhite;
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|-
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|| '''BA Quick-Summary''': <span style="color: green;>'''Credit-Based Insurance Scores'''</span>
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* Representing the NAIC, McCarty presented his views on the impact of credit-based insurance scoring on the '''availability''' and '''affordability''' of insurance.
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* This reading is closely related to ''[[Kucera.Credit]]''.
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|}
  
 
==Pop Quiz==
 
==Pop Quiz==
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Based on past exams, the '''main things''' you need to know ''(in rough order of importance)'' are:
 
Based on past exams, the '''main things''' you need to know ''(in rough order of importance)'' are:
  
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*
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* <span style="color: green;">'''disparate impact'''</span> of credit scoring on certain classes of insureds
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*
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* <span style="color: blue;">'''arguments against'''</span> use of credit scores ''(see [[Kucera.Credit]] for arguments <u>for</u> use of credit scores)
  
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: {| class="wikitable" style="width: 1000px;"
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: {| class="wikitable" style="width: 1200px;"
 
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|-
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! style="width: 175px;" | reference !! part (a) !! part (b) !! part (c) !! part (d) !! part (e) !! (part f)
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! style="width: 175px;" | reference !! style="width: 175px;" | part (a) !! style="width: 175px;" | part (b) !! style="width: 175px;" | part (c) !! style="width: 140px;" | part (d) !! style="width: 140px;" | part (e) !! style="width: 140px;" | (part f)
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|-
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| [https://www.battleacts6us.ca/pdf/Exam_(2018_2-Fall)/(2018_2-Fall)_(03).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2018.Fall #3)'''</span>
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|| [[Porter.2-Devlpt]]
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|| [[Porter.2-Devlpt]]
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|| <span style="color: blue;">'''arguments against'''</span> <br> - credit scores
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| [https://www.battleacts6us.ca/pdf/Exam_(2017_2-Fall)/(2017_2-Fall)_(01).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2017.Fall #1)'''</span>
 
| [https://www.battleacts6us.ca/pdf/Exam_(2017_2-Fall)/(2017_2-Fall)_(01).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2017.Fall #1)'''</span>
 
|| see [[Kucera.Credit]]
 
|| see [[Kucera.Credit]]
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|| '''credit scores''': <br> - arguments against
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|| <span style="color: blue;">'''arguments against'''</span> <br> - credit scores
 
|| see [[Kucera.Credit]]
 
|| see [[Kucera.Credit]]
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| [https://www.battleacts6us.ca/pdf/Exam_(2016_1-Spring)/(2016_1-Spring)_(01).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2016.Spring #1)'''</span>
 
| [https://www.battleacts6us.ca/pdf/Exam_(2016_1-Spring)/(2016_1-Spring)_(01).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2016.Spring #1)'''</span>
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|| pros/cons for using CBIS
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|| <span style="color: green;">'''disparate impact:'''</span> <br> - gender
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|| ex and pros/cons
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|| '''credit score vs frequency''' <br> - explain
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| [https://www.battleacts6us.ca/pdf/Exam_(2015_2-Fall)/(2015_2-Fall)_(01).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2015.Fall #1)'''</span>
 
| [https://www.battleacts6us.ca/pdf/Exam_(2015_2-Fall)/(2015_2-Fall)_(01).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2015.Fall #1)'''</span>
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|| how are age groups impacted
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|| <span style="color: green;">'''disparate impact:'''</span> <br> - age
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|| other groups being impacted
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|| <span style="color: green;">'''disparate impact:'''</span> <br> - other than age
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|| how can a metric drive loss diff
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|| '''metrics / drivers''': <br> - underlying credit scores
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|-
 
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| [https://www.battleacts6us.ca/pdf/Exam_(2014_2-Fall)/(2014_2-Fall)_(02).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2014.Fall #2)'''</span>
 
| [https://www.battleacts6us.ca/pdf/Exam_(2014_2-Fall)/(2014_2-Fall)_(02).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2014.Fall #2)'''</span>
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|| Kucera-cost based cond
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|| '''definition''': <br> - cost-based rates
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|| when is ins equitable
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|| '''equitable rates''': <br> - 2 conditions
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|| ex-is it equitable
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|| '''texting''' <br> - is it equitable
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|| rtng variable-co financial stab
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|| '''Bloom's Taxonomy''': <br> - financial stability
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|| IRIS ratio
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|| see [[NAIC.IRIS]]
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|| variable
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|| '''Bloom's Taxonomy''': <br> - proxy variables
  
 
|-
 
|-
 
| [https://www.battleacts6us.ca/pdf/Exam_(2014_1-Spring)/(2014_1-Spring)_(05).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2014.Spring #5)'''</span>
 
| [https://www.battleacts6us.ca/pdf/Exam_(2014_1-Spring)/(2014_1-Spring)_(05).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2014.Spring #5)'''</span>
 
|| see [[Kucera.Credit]]
 
|| see [[Kucera.Credit]]
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|| '''credit scores''': <br> - arguments against
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|| <span style="color: blue;">'''arguments against'''</span> <br> - credit scores
 
|| see [[Kucera.Credit]]
 
|| see [[Kucera.Credit]]
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|}
 
|}
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[https://www.battleacts6us.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=McCarty&suffix=Credit&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=all<span style="font-size: 20px; background-color: lightgreen; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''Full BattleQuiz]'''</span> <span style="color: red;">'''You must be <u>logged in</u> or this will not work.'''</span>
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[https://www.battleacts6us.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=McCarty&suffix=Credit&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=all<span style="font-size: 20px; background-color: lightgreen; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''Full BattleQuiz]'''</span>
  
 
&nbsp;&nbsp;[https://www.battleacts6us.ca/vanillaforum6us/categories/mccarty-credit<span style="font-size: 12px; background-color: lightgrey; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 0px;">'''Forum'''</span>]
 
&nbsp;&nbsp;[https://www.battleacts6us.ca/vanillaforum6us/categories/mccarty-credit<span style="font-size: 12px; background-color: lightgrey; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 0px;">'''Forum'''</span>]
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==In Plain English!==
 
==In Plain English!==
  
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This paper is easy to read. If you have time, glance it over as you are only responsible for the first 11 pages.
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This paper is easy - good bedtime reading. ''(You only have to know the first 11 pages.)'' It overlaps with [[Kucera.Credit]] but focuses more on potential <u>problems</u> with using credit-scoring in ratemaking.
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:{| class="wikitable"
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|-
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| '''Question''': identify arguments <u>against</u> the use of credit-scoring [Hint: <span style="color: red;">'''FEED'''</span>]
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|}
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:: <span style="color: red;">'''F'''</span>requency ''(credit score is correlated only with <u>frequency</u>, not with severity of claims)''
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:: <span style="color: red;">'''E'''</span>rrors ''(50% of credit reports have errors, sometimes due to identity theft)''
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:: <span style="color: red;">'''E'''</span>conomic downturns ''(downturns in economy may have a disparate credit impact on vulnerable populations)''
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:: <span style="color: red;">'''D'''</span>iscriminatory ''(credit scoring may lead to rates that are unfairly discriminatory - see below for details)''
  
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Basically, McCarthy is concerned that use of credit-based insurance scores disparately impacts certain classes of people thus has a discriminatory effect. He argues that even if a tool may show mathematical correlations with insurance claims, this does not necessarily make it fair and a valid criterion for insurance purposes.
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: [https://www.battleacts6us.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=McCarty&suffix=Credit&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=1<span style="font-size: 20px; background-color: aqua; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''mini BattleQuiz 1]'''</span>
  
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[https://www.battleacts6us.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=McCarty&suffix=Credit&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=all<span style="font-size: 20px; background-color: lightgreen; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''Full BattleQuiz]'''</span> <span style="color: red;">'''You must be <u>logged in</u> or this will not work.'''</span>
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:{| class="wikitable"
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|-
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| '''Question''': identify examples where credit scoring can be <u>unfairly discriminatory</u>
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|}
  
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==BattleCodes==
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:: '''age''': <u>young</u> people don't have a long credit history, <u>elderly</u> people use credit less often ''(both may result in a lower credit score)''
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:: '''poor families''': may use cash versus credit ''(you need to use credit to get a good credit score)''
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:: '''recent immigrants''': may not have access to credit ''(you need to use credit to get a good credit score)''
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:: '''moral/religious beliefs''': certain belief systems may discourage use of credit ''(you need to use credit to get a good credit score)''
  
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Memorize:
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: [https://www.battleacts6us.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=McCarty&suffix=Credit&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=2<span style="font-size: 20px; background-color: aqua; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''mini BattleQuiz 2]'''</span>
  
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There are a few <u>miscellaneous</u> items from old exams that are covered in the mini BattleQuiz. Make sure you look at the following problem because it ties together concepts from a few different readings: ''(It's also included in the mini BattleQuiz)''
  
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Conceptual:
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: [https://www.battleacts6us.ca/pdf/Exam_(2014_2-Fall)/(2014_2-Fall)_(02).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2014.Fall #2)'''</span>
  
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: [https://www.battleacts6us.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=McCarty&suffix=Credit&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=3<span style="font-size: 20px; background-color: aqua; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''mini BattleQuiz 3]'''</span>
  
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Calculational:
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: [https://www.battleacts6us.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=McCarty&suffix=Credit&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=all<span style="font-size: 20px; background-color: lightgreen; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''Full BattleQuiz]'''</span>
  
 
==POP QUIZ ANSWERS==
 
==POP QUIZ ANSWERS==

Latest revision as of 18:58, 18 May 2025

Reading: “Testimony of Kevin M. McCarty, Florida Insurance Commissioner, Florida Office of Insurance Regulation and Representing the National Association of Insurance Commissioners, Regarding: ‘The Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance,’ May 21, 2008,” Subcommittee on Oversight and Investigations of the House Committee on Financial Services, excluding Appendices 1 and 2.

Author: McCarty, K.M.

Forum

VIDEO → (4:00) → Credit Scores 2 - General Overview    (Click here for all currently available videos.)

BA Quick-Summary: Credit-Based Insurance Scores
  • Representing the NAIC, McCarty presented his views on the impact of credit-based insurance scoring on the availability and affordability of insurance.
  • This reading is closely related to Kucera.Credit.

Pop Quiz

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

  • disparate impact of credit scoring on certain classes of insureds
  • arguments against use of credit scores (see Kucera.Credit for arguments for use of credit scores)
reference part (a) part (b) part (c) part (d) part (e) (part f)
E (2018.Fall #3) Porter.2-Devlpt Porter.2-Devlpt arguments against
- credit scores
E (2017.Fall #1) see Kucera.Credit arguments against
- credit scores 		see Kucera.Credit
E (2016.Spring #1) disparate impact:
- gender 		credit score vs frequency
- explain
E (2015.Fall #1) disparate impact:
- age 		disparate impact:
- other than age 		metrics / drivers:
- underlying credit scores
E (2014.Fall #2) definition:
- cost-based rates 		equitable rates:
- 2 conditions 		texting
- is it equitable 		Bloom's Taxonomy:
- financial stability 		see NAIC.IRIS Bloom's Taxonomy:
- proxy variables
E (2014.Spring #5) see Kucera.Credit arguments against
- credit scores 		see Kucera.Credit

Full BattleQuiz

  Forum

In Plain English!

This paper is easy - good bedtime reading. (You only have to know the first 11 pages.) It overlaps with Kucera.Credit but focuses more on potential problems with using credit-scoring in ratemaking.

Question: identify arguments against the use of credit-scoring [Hint: FEED]
Frequency (credit score is correlated only with frequency, not with severity of claims)
Errors (50% of credit reports have errors, sometimes due to identity theft)
Economic downturns (downturns in economy may have a disparate credit impact on vulnerable populations)
Discriminatory (credit scoring may lead to rates that are unfairly discriminatory - see below for details)
mini BattleQuiz 1
Question: identify examples where credit scoring can be unfairly discriminatory
age: young people don't have a long credit history, elderly people use credit less often (both may result in a lower credit score)
poor families: may use cash versus credit (you need to use credit to get a good credit score)
recent immigrants: may not have access to credit (you need to use credit to get a good credit score)
moral/religious beliefs: certain belief systems may discourage use of credit (you need to use credit to get a good credit score)
mini BattleQuiz 2

There are a few miscellaneous items from old exams that are covered in the mini BattleQuiz. Make sure you look at the following problem because it ties together concepts from a few different readings: (It's also included in the mini BattleQuiz)

E (2014.Fall #2)
mini BattleQuiz 3
Full BattleQuiz

POP QUIZ ANSWERS

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