Credit Scores Used To Assess Risk In Insurance Industry Under Scrutiny

By Donald Griffith on April 18, 2010, 8:13 am

For insurance companies, use of credit scoring has always remained controversial. Despite widespread use of credit score in underwriting insurance policies, analysts believe that insurance companies should start looking at other variables, as well. In fact, experts suggest that credit scores may just vanish, altogether. Under those circumstances, insurance providers who are already working on inventing alternate methods, will prevail.

Need For Alternate Underwriting Strategies

Such concerns were hotly debated by Roosevelt Mosley, who works for Pinnacle Actuarial Resources Inc. In his address to Casualty Actuarial Society, Mr. Mosley stressed the need to devise alternate calculation strategies that do not rely solely on credit scores. Moreover, this year more than 26 bills have been introduced in State legislature to curb over dependence on credit scores.

Most insurance experts will agree that credit score sometimes does not tell the entire story. Therefore, it is important to look at past as well as make logical decisions about future. Actually, there are hordes of other variables that only few underwriters are using. Among these are risk taking profile, payment history and accidents. Amid growing concern over credit scores for evaluation purposes, some companies have already started utilizing innovative GLM based linear model techniques. These and other related model tweak their class plan to include multiple variables without ever relying on credit scores. At least, credit scoring controversy will continue festering insurance providers for a long time. Therefore, new underwriting strategies may allow companies to get rid of this controversy, once and forever.

 

Underwriters

Most insurance underwriters use credit scores to evaluate future risk. Now, experts are deploring such practices where credit score is the only factor in future risk analysis. Some companies have already taken credit score off from their risk evaluation methods, while a growing number are beginning to do so.

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One Response to “Credit Scores Used To Assess Risk In Insurance Industry Under Scrutiny”

1. Credit Scores Used To Assess Risk In Insurance Industry Under Scrutiny « Actuary.NET says:

   April 18, 2010 at 8:47 pm

   [...] more… [...]