New TransUnion data finds that its proprietary Insurance Risk Index declined for the second straight quarter at the end of 2009, possibly pointing towards a moderation in risk for the U.S. insurance industry. 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 decreased by 14 basis points in Q4 2009, falling from 99.46 in Q3 2009 to the current 99.32 level. The last time the Insurance Risk Index decreased two consecutive quarters was prior to the current recession between Q4 2006 and Q1 2007.

The key ingredient in the Insurance Risk Index is TransUnion’s 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 drop in the Insurance Index is encouraging news for the industry and consumers,” said Geoff Hakel, group VP in TransUnion’s insurance business unit. “Allowing the insurance industry to compare the risk level of states in which they operate to their own portfolios creates an environment where more informed risk decisions can be made. Better portfolio management has the potential to lead to better insurance pricing for consumers.”    

TransUnion notes that every state, except Connecticut, Minnesota and Mississippi exhibited a decline from the previous quarter. Year over year, the Insurance Risk Index has increased only 0.14% since Q4 of 2008.

Montana continues to rank as the riskiest state, with an index of 109.33. It is followed by Washington (105.56), Mississippi (103.02) and Arkansas (101.78). The states demonstrating the least risk from an insurance risk perspective are Alaska (94.80), Minnesota (95.34), Massachusetts (95.41) and Hawaii (95.82).

“The Insurance Risk Index should continue to drift slightly lower and then flatten out over the next few quarters as employment conditions across the U.S. improve,” said Chet Wiermanski, global chief scientist at TransUnion. “Improving employment conditions enable more consumers to remain current on their existing credit obligations, as the timely repayment of credit obligations is an important component within TransUnion’s insurance risk models. In particular, the second consecutive quarterly decline in the Insurance Risk Index within more than 47 states is very encouraging.”

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