Insurance scores better rating variable than credit scores: CEO

Canadian auto underwriters would benefit greatly from the use of consumer “insurance scores,” a more sophisticated form of a credit score, Chris Kiah told delegates of the National Insurance Conference of Canada (NICC).
Kiah, president and CEO of Allstate Canada, served as a panel member of the seminar ‘Lessons from U.S. Personal Lines Writers’ on Sept. 20 at the NICC in Montreal.
“In spite of a mountain of evidence showing how insurance scoring is probably the single most effective predictor tool for future losses, there remains suspicion and resistance to its use on both sides of the border,” Kiah said.
He cited two reasons for this:
• people don’t understand why it works; and
• people equate insurance score with credit score.
“I can tell you that insurance score is different from credit scoring, in that [insurance scoring] only includes the data from the credit score that have a high correlation with future loss cost.”
Kiah did not specify what those factors were during his presentation.
“One of the more popular recent questions is how credit-based insurance scores fared in the most recession during 2008-09,” he continued.
He drew NICC delegates’ attention to a graph that showed a blue line representing the credit score of the U.S. population, and a pink line representing the U.S. population’s insurance score.
The vertical axis of the graph denotes the scores, and the horizontal axis shows a series of years. The pink insurance score line appears relatively flat, while the blue credit score line shows peaks and troughs over the years.
“Going into the recession, the credit score goes up as more consumers have issues paying loans and meeting their obligations,” Kiah said. “On the other hand, the insurance score remains relatively stable in historical terms and throughout the recession.
“Clearly this illustrates the differences between the two and the fact that the insurance score is very uncorrelated with credit score and that the insurance score is a highly stable variable.”