Boston -- If laws, regulations and public opinion combine to prevent carriers from using credit scores to set insurance rates, the industry will need to find new ways to assess risk, according to speakers at the Casualty Actuarial Society Seminar on Predictive Modeling this month in Boston.

"If you are limited in terms of factors you can use, recalibrate current factors to make the best use of the situation when you cannot use insurance scoring," advises Roosevelt C. Mosley, a principal at Bloomington, Ill.-based Pinnacle Actuarial Resources Inc.

Without credit scores, Mosley says, insurers can assess risk by identifying factors in the current insurance scoring model that demonstrated responsibility, such as risk-taking behavior and stability. They also can use other variables, including accidents, traffic violations, payment history, number of years insured and number of years employed.

"Use these additional elements to do what you do better,” Mosley says. “We are not going to get back to what credit gave us when it was here, but it will be a way to get back some of what you lose if credit goes away."

The danger of losing credit scores as an actuarial tool is looming, says Mosley, noting that 70 bills have been introduced this year in 21 states to regulate the use of credit information. A ballot initiative to restrict credit-scoring is scheduled for November in Oregon and could become a model for other states, says Mosley.   

Part of problem, in Mosley’s view, stems from unfamiliarity. "In terms of public perception of the use of credit for insurance, there is a lack of understanding of the connection between insurance and credit scoring," he says.

Another speaker, Keith Toney, vice president of ChoicePoint Insurance Analytics, Alpharetta, Ga., agreed on the importance of public perception. "It is such a complex thing to understand, and many organizations are now putting themselves forward with an opinion about credit."

In response, the industry must teach the public about the benefits of using credit scoring as a risk-assessment tool, Toney says.

If states outlaw credit-scoring, Mosley says, rates could change by as much as plus or minus 25 percent.

 Source: The Casualty Actuarial Society

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