Risk managers can put away their stress balls for the moment, as the latest research report from TransUnion finds that risk levels aren't rising. According to the Chicago-based credit and information management firm, its proprietary Insurance Risk Index, which had declined during each of the three previous quarters, showed a slight increase as of the end of Q2 2010. Developed as a risk barometer specifically for the insurance industry, the Insurance Risk Index is designed to show the relative expected loss ratio for market segments throughout the country.
The Insurance Risk Index rose 10 basis points during Q2 2010, rising from 99.18 in Q1 2010 to the current level of 99.28. On a year-over-year basis the Insurance Risk Index is 30 basis points or 0.3% less than its value at the end of Q2 2009. In fact, with the 0.3% decline, the Insurance Risk Index is slightly less than it was during Q2 2006.
TransUnion says the key ingredients in the Insurance Risk Index are its insurance risk models, which are influenced by the length and stability of responsible credit performance. Benchmarked to the U.S. national average of 100 as of March 31, 2001, the Insurance Risk Index facilitates comparisons across geographies and demographic segments. For example, a state with an index of 110 is 10% riskier than a state with an index of 100.
"The Insurance Risk Index has begun to level off well within the range established in late 2006 which saw strong economic conditions," says Geoff Hakel, group VP of TransUnion's insurance business unit. "Now that the Insurance Risk Index is firmly entrenched within this range, insurance providers should expect stable loss ratios over the next year. This is good for the industry as well as the consumer since insurance premiums are tied to expected loss ratios and the relative risk of customers in their respective portfolios."
TransUnion notes that Montana continues to rank as the riskiest state in the nation, with an index of 109.12. Pacing behind Montana are Washington (104.96), Mississippi (102.76), Arkansas (101.71) and Texas (101.69). The states demonstrating the least risk from an insurance risk perspective continue to be Alaska (94.53), Minnesota (95.18), Massachusetts (95.61) and Vermont (96.12), which surpassed Hawaii (96.26).
Looking at the broader impact of these findings on potential claims, the firm adds that Insurance Risk Index, which currently is below 100, reflects higher insurance scores. The higher the insurance score for a consumer, the less likely they will be to file a claim, TransUnion says. As the economy continues to move forward at a slow, steady pace and additional improvements in the employment sector are more readily felt, consumers should have more room in their wallets to repay their existing credit obligations.
"As consumers begin purchasing large ticket durable goods such as automobiles and appliances, which are typically reflected in a consumer's credit report by the presence of new installment loans, we can expect to see the Insurance Risk Index drift slightly higher," says Chet Wiermanski, TransUnion's global chief scientist. "This is due in a large part to higher replacement costs that insurance companies may need to compensate consumers when a claim is filed."
Register or login for access to this item and much more
All Digital Insurance content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access