McCarty.Credit
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.
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 scoresE (2017.Fall #1) see Kucera.Credit arguments against
- credit scoressee Kucera.Credit E (2016.Spring #1) disparate impact:
- gendercredit score vs frequency
- explainE (2015.Fall #1) disparate impact:
- agedisparate impact:
- other than agemetrics / drivers:
- underlying credit scoresE (2014.Fall #2) definition:
- cost-based ratesequitable rates:
- 2 conditionstexting
- is it equitableBloom's Taxonomy:
- financial stabilitysee NAIC.IRIS Bloom's Taxonomy:
- proxy variablesE (2014.Spring #5) see Kucera.Credit arguments against
- credit scoressee Kucera.Credit
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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 You must be logged in or this will not work.
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)
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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)
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