Analytics

Washington — Gov. Marc Racicot, president of the American Insurance Association (AIA), made the case that the Federal Trade Commission's (FTC) credit study is the latest proof that credit-based insurance scores are fair, objective and beneficial to a vast majority of consumers. The American Insurance Association, Washington, represents approximately 350 major insurance companies that provide all lines of property/casualty insurance and write more than $123 billion annually in premiums. "There is no question that credit-based insurance scores are an efficient and accurate predictor of risk," stated Gov. Racicot. "Their use helps insurers refine their pricing to better reflect an individual's risk profile, resulting in most consumers paying less for insurance." In a statement to a U.S. House Subcommittee, Racicot responded to the FTC study, "Credit-Based Insurance Scores: Impact on Consumers of Automobile Insurance," (July 2007), which is the subject of a hearing today in the U.S. House Committee on Financial Services, Subcommittee on Oversight and Investigations. "It's a simple equation—the better your credit score, the lower your risk in the eyes of insurers— resulting in you paying less for your insurance," concluded Racicot. "The use of credit-based insurance scores has been in existence for more than a decade and has helped expand the availability of insurance in many markets, and increased competition among insurers." Opponents still contend that credit scoring tends to raise premiums overall, that it doesn't correlate directly with risk and that it may serve as a proxy for racial and ethnic discrimination, because some minority groups have lower incomes and are more likely to have credit problems. The FTC's study firmly validates the insurance risk assessment capabilities and consumer benefits of credit-based insurance scores. Most people pay less for insurance because of insurer use of credit, which the FTC's study, and numerous state studies have confirmed. According to the FTC, scores are 'predictive of the number of claims consumers file and the total cost of those claims,' and 'scores also may make the process of granting and pricing insurance quicker and cheaper, cost savings that may be passed on to consumers in the form of lower premiums.' Additionally, the FTC study directly refutes unfounded claims that insurers use credit-based insurance scores to 'unfairly target' minorities saying such scores 'have little effect as a "proxy" for membership in racial and ethnic groups in decisions related to insurance.' The FTC study shows there is no way to determine a person's race, ethnicity or economic status by simply looking at an insurance score. In August, the Federal Reserve also issued a report to Congress that evaluated the use of credit scoring and its effects on the availability and affordability of credit. The Federal Reserve's findings tracked closely with those in the FTC's study. Both clearly established that credit is a reliable risk predictor, and that credit scoring has little to no effect as a proxy for race or ethnicity, reports the government body. In urer use of credit is governed not only by the Fair Credit Reporting Act, which expressly allows for its use, but by dozens of state laws and regulations, including what is considered standard practice in the market, the National Conference of Insurance Legislators (NCOIL) Model Act on Credit. Introduced in 2002, the NCOIL model is law or regulation in 26 states, and it balances insurers' need to use an actuarially sound variable while enumerating certain consumer rights and protections, including not having credit be the sole determining factor for coverage or non-renewal, or allowing an exemption to insurer use of credit due to "special life circumstances" for things such as the death of a spouse or an unexpected medical emergency. The law also requires insurers to re-rate customers with corrected credit reports, notify applicants that credit information is being used in setting rates and let customers know if their credit information results in an adverse action—a higher premium, for example, or denial of coverage. It also is designed to protect consumers' privacy. Sources: PR Newswire, INN archives

To find the wellspring of the insurance industry's reputation for being technologically backward, one need only follow the glow of green screens to the heart of carriers' data centers where "Big Iron" still holds sway.To get a countervailing view, one could visit Erie, Pa., where Erie Family Life Insurance Co., a member of Erie Insurance Group, is undergoing a platform consolidation of its policy administration systems.

Most insurance technology executives will tell you that navigating their way to the executive suite is, at the least, a rewarding experience. This adage is true for men and women, but in the male-dominated insurance industry, women tend to relish the ride.

Have you ever had to find a stud to hang a picture? You knew the stud was there ... somewhere ... beneath the surface, but you just couldn't find it without exhaustive searching. Finding studs is like locating knowledge management and knowledge personnel in today's insurance industry: You know they're there, but at first glance they're always hard to find.Around the time of the dot-com boom, knowledge management was one of the buzz-worthy trends infiltrating business and insurance circles. Formally established as a discipline in 1995, knowledge management, and the inception of the chief knowledge officer, had gained steam throughout the late 1990s, but fell off the radar almost completely once the bubble burst.

When INN's editors began research on the topic for this month's cover story, women in insurance industry IT leadership positions, they were charged with finding out how women are faring within the broader context of IT and management. That discovery process turned up some pretty negative press.The Journal, an online forum for educators on the value of teaching technology, quotes the National Center for Women & Information Technology's (NCWIT) research, which indicates an 80% decline in the number of female first-year college students who chose computer science as their field of study between 1996-2004. According to NCWIT, today, women make up only 26% of IT workers in the country.

Pre-retirees and retirees may produce immediate retirement planning profit for insurers, but Generations X and Y also need to start planning for retirement. So how do insurers focus on all generations? "Take a step back and develop a more client-centric approach," says David Schehr, a research director at Stamford, Conn.-based Gartner Inc. "An insurer's technology choice is a reflection of its business choice. There is a perception out there-and there is some reality behind the perception-that insurance organizations tend to approach retirement much as a product sale. In reality, the insurer should first determine its risk tolerance. If an annuity is appropriate, set goals in a retirement planning process. Ask all of the client-centric questions and, from there, if it's appropriate, develop an annuity illustration."SEPARATING THE GENERATIONS

The U.S. Bureau of Labor Statistics estimates that between 2004 and 2014, 1.49 million new computer- and IT-related jobs will be created.The retiring boomer generation may play a role in these figures, according to the Robert Half Technology 2007 Salary Guide. The guide, from Menlo Park, Calif.-based Robert Half Technology, reports that as many as 64 million baby boomers, representing more than 40% of the U.S. labor force, are poised to retire by the end of the decade.

The need for insurers to evolve in today's competitive marketplace is at an all-time high. Whether expanding to reach an untapped niche, or improving systems and practices just to keep the pace, carriers are constantly in need of setting goals and brainstorming effective ways of reaching them.One such company, New York-based XL Insurance, recognized a gaping hole in the U.S. casualty marketplace throughout the late 1990s and early 2000s and, in January 2004, made a strategic decision to swiftly expand into the casualty risk management business by offering a portfolio of risk-sensitive products. The impediment: limited internal resources and a rigid time frame in which to implement new solutions. And, for XL's rapid, creative and successful response to the problem, the company was named third-place winner of Insurance Networking News' 2007 INNovator award.

New technologies and competitive pressures are gradually prying open the doors to carriers' rating systems, long locked away in the silos of proprietary or homegrown systems. These rule-driven systems, designed to evaluate potential policyholder risk and price policies accordingly, are increasingly being called upon to integrate with multiple channels, back-end systems and front-end portals to provide real-time or close to real-time pricing for customers.These changes are being driven by a number of factors, relates Craig Weber, an analyst with Boston-based Celent LLC. Rising customer and agent expectations, for one, are pressuring carriers to provider faster, more accurate and more flexible quoting. In addition, there is continuing pressure to keep a lid on IT spending, causing carriers to look for more efficient solutions.

Mounting competition and market shifts are forcing property/casualty insurers to take a new look at core business processes.With an eye toward profitable growth and increased market share, carriers are now focusing on underwriting-an area long under-served by technology. Today, most underwriting is done through slow, error-prone manual processes or by outdated legacy applications. This inefficiency is driving down profits and eroding sales.